The rate cut that never came

By Grace Ormsby

February 28 2020
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Nearly one in five Australians made a financial decision at the end of 2019 that factored in a fourth rate cut last year, even though that rate change never came.

A survey commissioned by online loan marketplace money.com.au has revealed how 17 per cent of Australians – based on a nationally representative panel of adults – actively made financial decisions in expectation of a further rate cut after the October change.

Of this percentage, nearly one in three (31 per cent) indicated they took out, or switched to, a variable personal loan, home loan or car loan in expectation of even lower rates.

One in 10 (or 11 per cent) said they had borrowed more on their home loan, thinking interest rates would fall a further 0.25 to 0.5 of a percentage point.

A similar amount (10 per cent) increased their personal spending towards the end of 2019, while 8 per cent had planned bigger purchases for 2020 such as holidays.

Helen Baker, a financial adviser and spokesperson for money.com.au, said the results indicate a proportion of mortgagors will usually borrow the maximum amount they can, without much give.

“For borrowers who expected the fourth rate cut last year, we can see that many chose to increase their borrowing rather than pay down more of the principal and pay debt off faster,” she commented.

As well as indicating a lack of concern around debt levels, Ms Baker said it shows a number of Australians “believe their employment income will continue and they are comfortable with their ability to service loans at a higher level”.

Furthermore, the financial adviser said these individuals are unlikely to have concerns that reduced interest rates “is a form of stimulus to deal with bigger economic problems at play, such as low wage growth and a poorly performing retail sector”.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

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