Finally, A Reason To Smile

Illawarra Mercury

Wednesday October 8, 2008

By ALEX ARNOLD

THE Reserve Bank's decision to cut the official cash rate by 100 basis points, to 6 per cent, caught everyone off guard yesterday.

But it was a pleasant surprise for Illawarra residents with a mortgage.

Ryan and Deb Neich, who are rebuilding their Fairy Meadow home to accommodate their growing family, said the cut was a big bonus.

"I wasn't expecting it to be 1 per cent, maybe .5," Mr Neich said.

With two young sons and a third child on the way, the family will soon be reduced to one income.

A firefighter working out of Sydney, Mr Neich said the commitment to upgrade their home was made 12 months ago - before the cash rate hit 7.25 per cent. "We had to do it," he said.

For those on an average mortgage of $300,000, the rate cut if passed on in full would save $215 a month.

Mr Neich said when the new house was completed he would be left with an average mortgage. Savings from a rate cut would be used to pay off the debt faster.

"I think the banks should pass on the full interest rate cut, but I don't think they will," Mr Neich said.

Just how much of the rate cut will be passed on to customers locally remains to be seen.

Yesterday, Illawarra-based financial institutions were still digesting the Reserve Bank's decision.

Horizon Credit Union general manager Jon Stanfield said it was too early to say if the full 1 per cent cut would be passed on.

"There will definitely be a substantial drop, which is great news for borrowers, but it will take time to assess funding costs ... We will be passing on what we believe to be a reasonable and substantial decrease," Mr Stanfield said. "We expect to have a decision by the end of the week ... but our attitude is that it is great news and exactly what the economy needs."

Yesterday afternoon Illawarra Credit Union CEO Mike Halloran said he was still in a state of shock.

Mr Halloran said the credit union would meet this morning to decide what action to take.

"One problem we have is that deposit rates are still very high, but we will pass on as much as we possibly can," Mr Halloran said.

An IMB spokeswoman said the building society was not commenting at this stage, but expected to make an announcement later this week or early next week.

© 2008 Illawarra Mercury

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