Interest rate cut won’t make us spend more, say mortgage holders

Interest rate cut won't make us spend more, say mortgage holders

Updated

March 04, 2020 02:20:49


Photo:

Brad Stephens and Kate Halton plan to put the rate cut back into the mortgage. (ABC News: Alison Branley)

The Reserve Bank yesterday cut the cash interest rate to a record low of half a per cent.

Key points:

The Reserve Bank says it cut rates today to support the economy during the global coronavirus outbreakHobart mortgage holders Brad Stephens and Kate Halton say the rate cut will not see them spend moreFormer Reserve Bank board member Bob Gregory says he would not have cut rates

Brad Stephens and his fiancee Kate Halton are members of the one-third of Australians with a mortgage who win from the reduction, but the Hobart couple says the cut will not see them spend more.

“We would be much more inclined to probably just tip that back into the mortgage and just bring our principal down a bit more,” Mr Stephens said.

“In the past when [cuts] happened, we’ve done that as well. So we’ve never really sort of taken that extra cash and used it for anything else, because it doesn’t make that much difference day-to-day.

“But you know, a little bit extra off the mortgage is a good thing.”

Mr Stephens is a real estate agent and does think lower interest rates could push up demand further for housing. It is part of the reason why they recently bought an investment property.

“The fact that the cost of money was just so incredibly low, even for an investment loan, meant that the rental repayments more than cover the mortgage. It was a big part of that decision,” he said.

“If rates were much higher then it wouldn’t have made as much sense.”

‘I wouldn’t have cut’


Photo:

Former Reserve Bank board member Bob Gregory believes the interest rate should have been left unchanged. (ABC News)

The Reserve Bank says it had to cut interest rates to support an economy which was being hit by the global coronavirus outbreak.

But even before the virus, the economy was growing below trend and with rising unemployment.

Former Reserve Bank board member Bob Gregory says if he was still there he would have tried to stop the cut.

“I wouldn’t have cut,” Mr Gregory told 7.30.

“It’s not going to do anything for universities, Chinese restaurants, travel agents, supply chains that have been blocked from China, and so on.

“The interest rate is not really the right sort of instrument to this sort of problem.”

During the global financial crisis, the Australian government acted to shore up confidence and economic support with a quick stimulus program including cheques in the mail.

This past weekend’s manufacturing data from China was much worse than during the height of the GFC, so many are calling for a Federal Government-led response.

The Reserve Bank has been appealing to the Government to loosen its purse strings and stimulate the economy.

“The [bank’s] governor has been sort of saying this for years,” Mr Gregory said. “He’s been sort of saying monetary policy is not going to be very effective. We should do more on the fiscal policy side.”

Prime Minister Scott Morrison told 7.30 the Government would announce an economic plan for coronavirus before the May Budget.

Mr Stephens and Ms Halton worry the impact of the coronavirus is already starting to bite in Tasmania.

“Obviously, the university is a big part of our of our economy here in Tasmania, with a big contingent of international students. And I know that that’s certainly having an effect on them,” Mr Stephens said.

Not so worried about Government having surplus


Photo:

Steve Williams would like to see further Government spending, rather than focusing on a surplus. (ABC News: Angelique Donnellan)

Mortgage holder Steve Williams moved house in Adelaide in order to lower his debt load.

“I’d say things are pretty tough. The cost of living is rising all the time and I feel that,” he said.

Mr Williams says he is more interested in the economy performing well than the Government achieving a surplus.

“What I’m most concerned about is whether I have money left over in the week to finish off the renovations of my house, go down and get some weekly shopping, things like that, and be able to have a night out with the boys,” he said.

“There’s more that I’m thinking about rather than having a surplus or not.”

And he sees some benefit in further Government spending.

“In South Australia, we have been very lucky. The Government has gone on a very large infrastructure spin, which has kept a lot of people in work.

“I’m lucky enough to have a fantastic job with a local council in civil construction, so at the moment that’s getting me by beautifully.

“But I know a lot of people that are underemployed or haven’t quite got the job they want, and they’re definitely suffering.”

Topics:

consumer-finance,

business-economics-and-finance,

banking,

housing,

housing-industry,

australia,

adelaide-5000,

west-hobart-7000

First posted

March 04, 2020 02:10:23

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