The Reserve Bank of Australia has cut the cash rate from 2.5 per cent to 2.25 per cent, with the aim of stimulating the Australian economy. The expectation is that banks will now pass this rate cut on to its customers, allowing them to have more disposable income to spend within the economy.

Smaller lenders like ING, ME and BOQ have already said they will pass the rate on, but we are still waiting to hear what the big banks will decide.

As you might guess, there are winners and losers with a drop in interest rates.

The winners:

–       Businesses involved in the property market, such as real estate agents, lenders, builders, property investors, conveyancers, valuers, etc.

–       People looking to sell their homes or investment properties

–       People looking to borrow money or restructure their existing debt

–       Businesses looking to borrow money or restructure their existing debt

–       People and business’ looking to pay down their debt

–       Domestic tourism organisations

–       Exporters

The losers:

–       Those who hold interest-bearing investments

–       Those with term deposits

–       Those on high fixed-rate mortgages

–       Those living from their savings. (e.g. retirees)

–       People looking to save for a home deposit

–       Those looking to travel overseas

–       Importers and people looking to purchase large imported goods (cars, refrigerators, etc.)

The rate cut also carries certain risks:

–       It may fuel a property bubble.

–       Banks may become more prudent with their lending, making loans harder to get.

–       People may hoard the rate cut savings instead of spending it, which helps stimulate the economy.

There are, however, some things you can do to put yourself in a better position:

Contact your finance broker or credit advisor to ask for specific advice on:

–       Whether your existing lender has passed on the rate cut

–       Whether your existing lender is still the best one for you in the current market

–       Whether you should fix all, part or none of your loans.

Shop around to see whether your savings account is still worthwhile or whether you should consider redirecting your money to an offset or redraw account.

Get your property re-valued if you have been considering selling.

If you have a principal and interest mortgage, leave the repayments as they are so you can pay off your loan sooner.

If your loans are interest-only, use the excess money wisely.

For more information, or to discuss your own situation with a finance specialist, contact Master Builders Financial Services on (03) 9411 4555.

The information provided in this article is of a general nature and does not constitute financial, credit or property advice. Your personal circumstances have not been taken into consideration, so please seek specific advice to suit your situation.