RBA's rate cut will trigger rise in refinancing: Jessica Darnbrough

GUEST OBSERVATION

Heading into 2015, I think we can expect to see a steady increase in the level of refinancing.

The Reserve Bank’s decision to cut the cash rate in February will no doubt encourage more home owners to review their current mortgage, which may prompt them to take the plunge and refinance into a more competitively priced home loan.

But while an increasing number of home owners could potentially be inspired to refinance their mortgage as a result of the rate cut, I do not expect to see a dramatic increase in the number of new home buyers entering the market.

Given how low interest rates already are, the February rate cut is unlikely to persuade potential home buyers to bring their property purchase plans forward. Instead, potential buyers will continue to take their time and enter the market at a point that is convenient for them.

That said, the Reserve Bank of Australia together with other industry regulators, including the Australian Prudential Regulation Authority (APRA), will still keep a close eye on what is happening in the property market as they will want to make sure the rate cut doesn’t artificially inflate the property market – especially in Sydney.

As part of the Reserve Bank’s February cash rate decision, governor Glenn Stevens said the Bank would work closely with “other regulators to assess and contain economic risks that may arise from the housing market”. 

This statement strongly suggests industry regulators won’t hesitate to implement certain lending restrictions if the latest rate cut results in a sudden and dramatic increase in demand for property.

Jessica Darnbrough is head of corporate affairs with Mortgage Choice.