The Reserve Bank of Australia's decision to cut interest rates by a hefty 1% amidst deteriorating global economic conditions is a welcome relief for struggling homeowners and provides opportunities to first homebuyers.

The rate cut, if passed on fully by lenders, would save borrowers $215 per month for an average loan of $300,000. Even if the lenders will only pass half of the rate cut, borrowers can still look forward to substantial savings.

Westpac jumped the gun and announced it’s lowering its variable rate by 0.80% to 8.56%. The other big banks have not made any announcements regarding their decisions but the market is expecting them to follow suit shortly.

The RBA said in its statement that the conditions in international financial markets took a significant turn for the worse in September, prompting the bank to make a larger-than-expected rate cut.

"The recent deterioration in prospects for global growth, together with much more difficult market conditions even for creditworthy borrowers, now present the risk that demand and output could be significantly weaker than earlier expected. The Board also took careful note of movements in funding costs in wholesale markets. Having weighed these considerations, the Board decided that, on this occasion, an unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers. The Board does not, however, regard that movement as establishing a pattern for future decisions."

The RBA said that while officials in other countries have taken the necessary steps to restore confidence and lay a foundation for longer-term recovery in the sector, financing is likely to be difficult around the world for some time ahead.

Ahead of the RBA announcement, non-bank lender BEAT Home Loans announced it will cut its rate by 0.25%. "While the credit crisis has increased the cost of funds, there is definitely room to move and help borrowers, many of whom are struggling," said Kelley Humpreys of BEAT Home Loans. "We're operating in unprecedented times. There's no denying that the recent credit crisis saw a significant tightening in the margin; that said, we believe it's important particularly in challenging times like these to show leadership and shore up confidence in our customers. Like other lenders, BEAT has access to funds so we just need to make sure we make those funds available to consumers at the best price possible."

BEAT Home Loans promised to pass on any rate cut made by the RBA.

"We believe banks should and will reconsider their position to pass on as much as possible from whatever the RBA passes today. BEAT will definitely pass on the rate reduction by the RBA," said Humpreys.