Leisa McDonald, of Goonellabah, with her daughters Phoebe (left), 7, and Gabriella, 9.
Leisa McDonald, of Goonellabah, with her daughters Phoebe (left), 7, and Gabriella, 9. The Northern Star

Rate cut provides local financial relief

ON the day the Reserve Bank announced its biggest rate cut for 16 years, Leisa and Stephen McDonald were already feeling the relief.

The couple sold their Lismore home three months ago and are now looking to buy land at Goonellabah.

"It was a bit worrying the way the interest rates were. I'm hoping the land won't be so dear," Mrs McDonald said.

The Reserve Bank board lowered the official cash rate by 100 basis point to 6 per cent.

Westpac, NAB and the Commonwealth Bank also announced they would pass on 80 basis points, or 80 per cent of the rate cut, to borrowers.

The cut will have a definite impact on the McDonald's budget.

"We can put more money into the mortgage," Mrs McDonald said.

Housing Industry Association Chief Executive Chris Lamont said yesterday that the rate cut provided a glimmer of hope for mortgage holders and aspiring first-home buyers.

"Increases in interest rates were the final straw for many current and aspiring home-buyers. Rate cuts will provide some necessary relief," he said.

Mr Lamont said that despite uncertainties in the economy, further rate cuts predicted over the next 12 months would provide greater opportunities for Australians to get into home ownership.

"Put simply, if you can afford to get into a home of your own, don't delay," he said.

A full percentage point reduction in mortgage interest rates meant a saving of $215 a month on a $300,000 mortgage, or almost $2600 a year, Mr Lamont said.

But Paul Deegan, who is the principal at LJ Hooker in Lismore, and chairman of the Northern Rivers branch of the Real Estate Institute of NSW, said he did not think the rate cut would have a dramatic effect on the local property market.

"It will probably pick up the slack in terms of numbers (of sales), but it won't do much to prices," he said.

Mr Deegan said there had been a drop of an average of about 20 per cent in the volume of sales across the region, compared with the same time last year.

"This will put a little bit more confidence back into the market, but people will still be standing back waiting to see what happens (with the global financial crisis)," he said.

"Real estate is a lot less volatile. It doesn't happen overnight."

Mr Deegan said although the rate cut was 'substantial', the greatest barrier for many young people being able to borrow for their first home was the level of personal debt and credit card debt they had accumulated.

"Lending authorities are very tough now. If you don't qualify, it doesn't matter if the rate has dropped," he said.

Reserve Bank Governor Glenn Stevens said the central bank had judged a large movement in the cash rate was needed, after studying the outlook for global growth and its likely effect on Australia.

"The board will continue to assess prospects for demand and inflation over the period ahead, and set monetary policy as needed to bring inflation back to the 2 to 3 per cent target over time," he said.

It is the first 100 basis point cut to the cash rate since May 6, 1992, when the RBA lowered the cash rate to 6.50 per cent

Prime Minister Kevin Rudd welcomed the Reserve Bank's decision and said it would help maintain the stability of the financial system and see Australia through 'tough times ahead'.

He said Australia was dealing with extraordinary economic times.

Forecasters had been expecting a 50 basis point cut, and industry groups have praised the Reserve Bank decision to slash the rate by a full 100 points.

The Australian Retailers' Association said the cut would stimulate the economy and provide a boost to consumer confidence ahead of the Christmas season.

"This will help turn consumer confidence around after successive months of stagnant and declining growth," ARA Executive Director Richard Evans said.

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