Home owners and investors have welcomed suggestions that the Reserve Bank of Australia will cut interest rates this year, but will the Banks pass the rate cuts onto borrowers?

Prime Minister Kevin Rudd has told Australians to change banks if they fail to pass on rate reductions. The banks have had no problem increasing rates to levels higher than official rate increases and have even increased rates despite the Reserve Bank keeping them on hold.

In an interview with The Australian Financial Review last week I was asked what it would take to restore confidence in the market. I expect buyers to remain cautious until the banks show that any rate reductions will be passed on. I believe a rate cut of around one per cent is needed to restore buyer confidence as I’m hearing increasingly that buyers and vendors are skeptical that banks will pass on the rate cuts. A reduction of 100 basis points will result in the market reacting in a positive way, even half a per cent will be looked cautiously.

So the question is buy now or wait? The answer is simple. There are some fantastic buys in the market at the moment and this will continue for the foreseeable future. As the stock market wobbles, dividends decrease and share prices drop bricks and mortar will become a major focus for many investors.

If you find the right property at the right price and choose the right lender your decision is an easy one to make. My only advice is to ensure sure that you keep your lender honest, and if “changing banks” as PM Rudd suggests, make sure you are aware of all fees and costs that may apply.

Michael Marquette

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