One in five Australians caught out the rate cut that never came

Research shows that Australians are prepared to borrow big regardless of risks.

man looking at his watch

Nearly one in five Australians was left hanging after making financial decisions to prepare for a rate cut that never came, according to new research from money.com.au.

The money.com.au survey found that 17 per cent of Australians actively made decisions in the expectation the Reserve Bank of Australia (RBA) would announce its fourth rate cut last October. But the change never came.

Of this percentage, 31 per cent took out, or switched to, a variable personal loan, home loan or car loan in expectation of lower rates, while 11 per cent borrowed more on their home loan, thinking interest rates would fall a further 0.25 to 0.5 percentage points.

Also, 10 per cent ramped up their spending towards the end of 2019, and eight per cent began planning for bigger purchases such as holidays.

The results indicate how many Australians will take any opportunity to borrow big regardless of risk.

“For borrowers who expected the fourth rate cut last year, we can see that many chose to increase their borrowing rather than pay down more of the principal and pay debt off faster,” said money.com.au spokesperson Helen Baker.

Apart from Australians’ seeming lack of concern around debt levels, Ms Baker said it showed Australians were confident “their employment income will continue, and they are comfortable with their ability to service loans at a higher level”.

She added that these same people were unlikely to have concerns that reduced interest rates were “a form of stimulus to deal with bigger economic problems at play, such as low wage growth and a poorly performing retail sector”.

The RBA is expected to announce a 0.25 per cent rate cut at 10am Tuesday morning.

The revised forecast comes after Australia’s sharemarket has fallen for seven consecutive sessions and closed at a six-month low last night.

Did you make any financial decisions in anticipation of an October rate cut? Or did you play it safe? How will the next rate cut influence your financial decisions?

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    COMMENTS

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    Allenmack
    3rd Mar 2020
    10:31am
    Yes or course, "the RBA is expected to announce a 0.25 per cent rate cut". That should sort out any problems with the economy. It's amusing to watch. Didn't Einstein say the definition of insanity is to keep doing the same thing over and over expecting a different result"
    mr.auspicious
    3rd Mar 2020
    11:15am
    Statistically the odds of a cut in interest rates is one in three or 2/1 against. I'm not sure
    whether the financial pundits are aware that their predictions have a 67% of being
    incorrect .....
    Mariner
    3rd Mar 2020
    11:45am
    No surprised - Europe charges you to keep your money in the bank. Most probably comes here as well - reason why property prices are lifting endlessly.
    Rae
    4th Mar 2020
    8:27am
    Yes and the reason cash spends over $10 000 are forbidden and a welfare card being rolled out. The only way to stop people going to cash at negative rates is by compulsion.

    It's why Sweden has gone cashless and has negative rates.
    Rae
    4th Mar 2020
    8:30am
    Talk about a transaction tax and business has dire warnings about how bad that is but apparently a banking fee on every dollar is okay. I think the economists have gone mad and really can't see any rational solutions such as raising Newstart and getting extra money into lower income earners wallets.
    Bren
    3rd Mar 2020
    12:04pm
    I think you'll find that the RBA does not announce rate decisions at 10am, but rather at 2:30pm!!!!
    eraser
    3rd Mar 2020
    1:05pm
    correct Bren
    Bren
    3rd Mar 2020
    12:04pm
    I think you'll find that the RBA does not announce rate decisions at 10am, but rather at 2:30pm!!!!
    Sundays
    3rd Mar 2020
    12:22pm
    They weren't caught out. They gambled on a decision they thought would be made. It didnt work out.
    KSS
    3rd Mar 2020
    1:38pm
    Agree. Onus on them, not the bank, the Government or anyone else.
    Eddy
    3rd Mar 2020
    1:08pm
    I never make any decisions, financial or otherwise, with reference to external organisations. My financial decisions are based on 'can we afford it now' and other decisions are based on 'do I really need or want it'. The RBA does not pay my bills.
    KSS
    3rd Mar 2020
    1:37pm
    I would never make a financial decision based on a best case scenario e.g. interest rates reductions, salary increases etc. When I took on a mortgage I made sure that I only borrowed an amount that I could afford to pay at the time plus 5% So at the time the interest rate was around 5.7% and I wanted to be able to continue to repay the loan if the interest rate climbed to 10-11% and my salary stayed the same.It would have been foolish at the time to have factored in salary rises when in reality I only received 2 small increases in 10 years. As it happened I dodn't get pay rises but the interest rate dropped, I kept the payments the same as they were before the decrease and paid fortnightly. This way you end up way ahead and I now have no mortgage.

    I find it very difficult to be sympathetic to those who make financial decisions they know they cannot afford then cry when it all goes pear shaped (whether overspending on a credit card, taking a loan to buy a car or a mortgage on a house they can't afford).
    mr.auspicious
    3rd Mar 2020
    2:38pm
    agree - it seems " prudent financial management " is quickly becoming a lost art......
    Mariner
    3rd Mar 2020
    3:51pm
    KSS - glad it worked out for you. We signed at 8.5% in early 1978 and ended up at 16.4% in 1983. Sold up and put the money on term of 24 months a 18%. After that we bought a house again. Looking forward with an eye on past experiences.
    Oma
    3rd Mar 2020
    2:36pm
    Why is everyone so concerned about the interest rate going down? How about thinking about the poor pensioners who have a little money saved while working and paying tax all their working lives and are now penalised every time the interest rate goes down. Come on people, when we were paying back our loans the interest rate went up to 17%. Stop complaining and do what you need to do to get by. Work harder, we did.
    Tanker
    3rd Mar 2020
    3:30pm
    There is too much concentration on making more money by those who are already well off. Those of us who are not in that well off category, but comfortable, survive by being modest with our expenditures and survive quite well thank you.
    The old saying "the love of money is the root of all evil" is still true and spending your life trying to get more than you really need is frankly silly.
    Rae
    4th Mar 2020
    8:35am
    As an ordinary slightly above median earner for 43 years paying 37% top tax I am furious that tax for high income earners is dropping to 30%. Why can't these people support their Country like we did.

    After tax and super I had to be modest because there wasn't much left to allow any splurging or borrowing.
    Cheezil61
    3rd Mar 2020
    4:27pm
    I somehow doubt the credibility of this survey & doubt people would be as stupid as suggested somehow!
    Curious
    3rd Mar 2020
    4:45pm
    I never make any decision on the official interest rate announced by RBA for the following reasons: -
    1. An official interest rate is a macro-economic tool to correct or to stimulate an economy at a very high level.
    2. The official interest rate has an innate influence on the foreign exchange rate and some people would like to gamble on it. One can be very rich if one is on the money but very poor if one misses the mark.
    3. With the deregulation of the financial industry in Australia, the decrease of an official interest rate is not a guarantee for a full or a partial decrease in a mortgage rate.
    4. The decrease in interest rate may not follow with an increase in the value of the Aussie dollar. This depends on the balance of trade and the demand for our commodities. Also, the globalization factors are at play.
    5. To book a holiday or a cruise with the hope of a strong Aussie dollar is not a good idea for the reasons mentioned above.
    6. Even one has the money to enjoy life, a travel restriction like the coronavirus', one cannot plan too far. My sojourn to Queensland has been canceled twice by an airline. That proves money is not everything.
    7. Our daily life activities are at the basic microeconomic level. I wouldn't like to use the macroeconomic tool to make my life easy and comfortable. This is because I would be very sorry if I guess it wrong.
    skinner
    3rd Mar 2020
    8:57pm
    Never count your chickens...……….
    skinner
    3rd Mar 2020
    8:57pm
    Never count your chickens...……….
    Circum
    3rd Mar 2020
    9:57pm
    Philip Lowe is fooling himself if he thinks another Rate cut is going to provide the economy with confidence and improvement.Personally the cut means tightening the belt further to reduce expenses as my income drops again.Et Tu Philip Lowe.
    Circum
    3rd Mar 2020
    9:57pm
    Philip Lowe is fooling himself if he thinks another Rate cut is going to provide the economy with confidence and improvement.Personally the cut means tightening the belt further to reduce expenses as my income drops again.Et Tu Philip Lowe.
    arbee
    4th Mar 2020
    12:43am
    Actually I expected to win the lottery on Tuesday night so I went out and signed up for a new house and car on the strength of my beliefs. That would be about as stupid as making decisions based on a rate cut expectation. Anyway it wouldn't pay to over expose with rate cut expectations, because soon there will be no where for rates to go, but up. Like stock markets, they are cyclical.
    Rae
    4th Mar 2020
    8:25am
    I didn't base decisions on a cut. It doesn't affect me as I haven't held debt since the 23% on a farm loan cost me a house back in 1992.

    Good luck to debtors because they'll need it.

    I doubt the tax cuts for higher income people will help them and it won't help retirees, under or unemployed either.

    I expect we'll see a recession soon.

    Supporting debt by cutting rates close to 0 only assists the spendthrifts and people who paid far too much for property. Business isn't borrowing to expand or employ because cashflow has dried up due to foolish Government policies.

    No cashflow is very bad for any business.


    Tags: money, debt, finance,

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