RBA holds interest rates at 1.5 per cent for October

The RBA today has decided to hold the cash rate unchanged at the historic low of 1.50 per cent. This is the second month in a row that rates have been held after the cash rate was lowered by 25 basis points from 1.75 per cent in its August review.

This low interest rate environment has helped support domestic demand, whilst the lower exchange rate since 2013 has also helped the trade sector.

The board stated that supervisory measures have helped strengthen lending standards within the housing market, whilst a number of lenders are also taking a more cautious attitude to lending in certain segments.

Over the past year, growth in housing lending has slowed down and turnover in the housing market has also declined. The rate of increase in housing prices is now lower than this time last year; however, some markets have recently strengthened. Over the next few years, there will be a surge of new apartments coming onto the market, particularly within the eastern capital cities. There’s good news for renters though as growth in rents is now at its slowest for some decades. This might not be so good for investors, but negative gearing may take away some of this risk.

Now is the perfect opportunity for property buyers and investors to enter the property market. Interest rates are at an all-time low, with mortgage repayments far more affordable and there are still plenty of property opportunities to be had. If you are on a variable mortgage, then a lower interest rate will mean you can enjoy lower repayments, whilst those on fixed-rates can also make the most of these lower repayments.

However, it might be harder for first time buyers who are trying to save up a deposit to buy their first home. Savings just aren’t benefiting from a good amount of interest, making the journey to buying the first home even longer. Buying a home at a time when interest rates are low does make a home much more affordable. A prolonged period of low interest rates (combined with housing shortage) helps boost demand for property, pushing property prices up.

It is expected though that the RBA will push the cash rate even lower before it begins to increase and 2017 is thought to see this rate drop to 1.25 per cent.

With such low interest rates, there is talk about whether home loan providers should start to offer more competitive and longer term fixed rate mortgages. The United States already offers 10 and 20-year fixed rate products, so a 10-year fixed rate mortgage could be much more appealing in Australia’s property market.

A longer fixed rate term loan will provide borrowers much more certainty and peace of mind, knowing that their repayments won’t change for the duration of the term, even if interest rates do rise. Although previously there has been little demand for these 10 or 20 year mortgages, this low interest rate environment could prove them to be more popular as borrowers shop around for the best deal available.

So how would this slow growth affect the housing market? With an increase in housing supply, rents are continued to be kept down throughout Australia’s major capital cities. Although this might not be attractive for property investors, negative gearing could still make property investing attractive, helping to keep investor risk down.

It is unlikely that a further interest rate cut will come about in the lead up to Christmas. Unemployment is steady, as is economic growth, whilst the property market, particularly in Sydney is still starting to cool. It is likely that the RBA is waiting to review Q3 data, released at the end of October, before making any decisions as there is no real new data to cause a rate cut right now.

According to CoreLogic head of research Tim Lawless, “Housing market conditions were almost certainly one of the topics discussed at the board meeting, as well as the stubbornly high Australian dollar, an inflation rate that is well below the target range of 2-3 per cent and a remarkably strong rate of GDP growth released for the June quarter.”

“Higher housing supply levels and lower levels of affordability are likely to naturally dampen some of the upwards pressure in housing markets, however investor activity has once again been consistently rising since June. Clearly the housing market is diverse and low interest rates are only one factor that is influencing conditions.”

To learn more about what this hold on interest rates means for purchasing property off the plan, why not call the iBuyNew team today to discuss your property plans in more detail. Call us now on 1300 123 463.
Published on 4th of October 2016 by Marty Stanowich
Marty Stanowich
Marty Stanowich

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