University of NSW Associate Professor Mark Humphery-Jenner says the major banks are set to pass on the RBA’s rate cut but not straight away, with another cut likely later this year, easing pressure on mortgage holders

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Episode Transcript

Speaker 1 (00:00):
Now the Reserve Bank, as we know, have cut interest
rates by zero point two five of eight percentage point
to three point eight five percent. It is the second
cut to rates this year, providing some further relief to
home loan borrowers. Joining me on the line is Associate
Professor Mark Humphrey Jenna from the School of Banking and
Finance at the University of New South Wales. Good morning to.

Speaker 2 (00:22):
You, Mark, morning greeping with you.

Speaker 1 (00:25):
Yeah, lovely to have you on the show. Now, Mark,
what will this interest rate cut mean for Australians with mortgages.

Speaker 2 (00:32):
Well, it's definitely good news because with this twenty five
based point cut, well now the mortgage is very likely
to go down. Like most of the banks are going
to pass this on, but not necessarily immediately. So for
example Westpac I believe has deleted through to our June,
but most of them will eventually pass on the twenty
five base point cut. And as good news because it

(00:52):
looks like we may get some more later this year
as well.

Speaker 1 (00:55):
Yeah, I think we're all hoping that, Mark, is that
how it's sort of looking as though it will meet
that there could be further.

Speaker 2 (01:01):
Cuts certainly so apparently the RBA was debating a fifty
base point cut, so that's a whole half percentage point
cut this meeting, but they decided to go with twenty five.
And now that suggests we've got at least one more
this year, but most people are looking at probably about
two more this year, bringing us to a total one
percentage point cut throughout twenty twenty five.

Speaker 1 (01:22):
I mean, that would be wonderful news, and I think
it'd be wonderful news for so many homeowners with mortgages.
What will it mean, I guess more generally, when we
look at the economy and some of the stress that
mortgage holders have been living under.

Speaker 2 (01:36):
Yeah, absolutely be good news for mortgage holders because, let's
face it, mortgages have gotten incredibly expensive. There were thirteen
interest rate hikes, which means that in reality, many people's
mortgage payments doubled, if not more, and many will be
under stressed. Many will have already actually sold their properties
for course of this. So definitely great news. But not

(01:58):
only that, it's good news for small business because small
business will often need to borrow at least some money,
some of which we guaranteed against the home of the
founder of that business. So we'll make that debt a
lot cheaper and a lot easier to get, which will
to some extent help with growth. There's some other issues
in the economy with productivity and growth, but at least

(02:19):
the interest rates will remove some pressure.

Speaker 1 (02:22):
Now, in terms of the housing market, do you think
that that interest rate cut is going to mean much
of a change to the housing market.

Speaker 2 (02:30):
It will mean a bit of a change, but perhaps
not as much as some people might fear if they're
perhaps looking at entering in the market now. The reason
they say that is when the infrast rates are cust
it makes it easier to service a mortgage, so of
course people can go out and borrow more money. Usually
it's been estimated a few percentage points more, which can
add up to quite a lot of money. But anyway,

(02:52):
they'll be able to borrow a little bit more. However,
wages have been rather sluggish, which means that even if
the interest rates to cut, there's just a limit to
how much people can afford, and deposits also get in
the way. There's also the fact that well, house prices
will go up a bit, but there's only so high
they can really go really, given what people are earning

(03:14):
Now this isn't to say that those increases are necessarily bad, right,
So say, for example, you add due to one hundred
thousand dollars to buy a million dollar house, so ten
percent deposit there. Now see those houses then four by
ten percent, we're not underwater, or at least you've lost
all of your net worth. So your network went from
one hundred back down to zero because you've lost one

(03:36):
hundred thousand of the house. So you do want them
to grow steadily in any sustainable way. And they suspect
the interest rates aren't good to create house prices skyrocketing.
The biggest impact they think will be easier for people
to sell properties that it mayage being slow moving.

Speaker 1 (03:52):
However, Yeah, I mean you spoke about the wage growth
not really or you know, maybe not seeing that wage
growth in the way that we might like. And despite
the fact that then the interest rates are coming down,
you're still sort of not maybe getting paid as much
as you might like. When do you think we'll start
to like, I don't know what the right way to
say it is, but when do you think we'll sort

(04:13):
of start to see that kind of thing turned to
some degree or change a little bit?

Speaker 2 (04:18):
I think will be a long time coming. That we're
seeing some wage growth at the lower ends, often because
of either darthmental union pressure. However that doesn't really filter
through into above minimum wages. There's a lot of peep
compression going on, which means that it is going to
remain sluggish for a long time. Things have been talked

(04:38):
about have included productivity growth, which basically means getting more
units of output per hour work and that might come
through AI, but in reality we haven't really seen a
lot of that really occur at the moment, and in
reality itself, of that it might just mean fewer people
are being hired rather than people are actually working more effectively.

(05:00):
I think in reality for productivity growth to OCCODE, we
probably need a few factors. First. We probably do need, actually,
as bad as it sounds, human capital and financial capital
to well be mobile because at least then that means
that companies need to compete in the global labor force
for talent. What that basically means is that the US

(05:21):
is paying more and companies need to compete for US
labor They need to pay more as well. That's part
of it. The other part of it as well is
companies are as well, many small businesses in particular are
struggling with costs, and costs are going up and their
book set to continue to increase. And these costs of
regulatory costs, they're taxes, they're various other things that eat

(05:43):
into even their ability to pay more.

Speaker 1 (05:47):
Well, it's going to be interesting. I mean it is.
The main thing I suppose is for a lot of Territorians,
a lot of Aussies, that interest rate card is going
to have a big impact. And I think if we
see another one that'll make a lot of people pretty happy.
I dare say, Mark.

Speaker 2 (06:03):
Yeah, absolutely, that's definitely true.

Speaker 1 (06:05):
Yeah. Well, good to catch up with you this morning.
I really appreciate your time. University of New South Wales
Associate Professor Mark Humphrey Jenna, thank you so much for
joining us.

Speaker 2 (06:15):
Thanks for having me.

Speaker 1 (06:16):
Thank you