Rate cut will improve housing affordability

While yesterday’s Reserve Bank’s decision to cut interest rates will have come as a surprise for some, I have always said the next cash rate movement was always going to be down – it was just a question of when.

More important than the 25-basis-point reduction is the fact that rates have declined for two consecutive months now, confirming they are trending in a downward direction. This trend is paramount to buyer confidence and is another factor supporting what is already a buyers’ market.

While European economic woes continue to loom overhead, those with secure employment on the lookout for property will rarely experience an environment as attractive for buying as the current market.

Prices are stable, and vendors are necessarily being more realistic when it comes to price. The emergence of a downward interest rate trend will have further positive bearing on affordability.

Of course the official cash rate is one influence, and much will depend on whether the banks, which admittedly have seen their own costs of borrowing increase, pass on the rate cut to their customers.

In the context of global uncertainty, as the impacts of the European debt crisis filter through to the domestic market, this decision should be welcomed as a safeguarding measure.

Leanne Pilkington is general manager of Laing + Simmons