The slashing of the official cash rate to 2.5% yesterday looks likely to be passed-on in full by Australia’s lenders (Westpac has already passed-on more than the cut). This should see the average standard variable mortgage rate drop to only 5.95%, with the average discounted rate falling to only 5.05%.
At 5.05%, the discounted rate (which most new borrowers receive) would see Australia’s variable mortgage rates fall to their lowest level since the late-1950s and early-1960s, when rates bottomed at 5.00% (see next chart).
It would be wrong, however, to declare that mortgage rates are near record lows. When adjusted for inflation, real mortgage rates – 2.95% (discounted) as at June 2013 – are the lowest since late-2008 and the early-2000s, but well above levels that existed prior to the early-1980s (see next chart).
What should become clear from the above chart is that the 1970s was a dream time to purchase a home (provided you qualified for a mortgage). Not only were homes highly affordable at roughly three times incomes, but a purchaser was in the fortunate position to have had their debts inflated away via high inflation and centrally indexed wage rises that outpaced the cost of credit.
