Cash Rate Decisions By Reserve Bank Influence Lending Rates

Investing in “bricks and mortar” has for many years been the pathway to financial independence for thousands of Australians. Our real estate market has performed well overall, and our taxation system provides additional incentives that make owning investment properties attractive.

Low Interest Rates Not the Whole Story

One of the drivers of the growth in this sector of the market has been our historically low interest rates. These provided the impetus for a sustained building surge, especially for new apartments close to the CBD. However, low interest rates are not the whole story when it comes to selecting properties that will provide the best return.

The selection process is not something that prospective investors should undertake without some professional assistance. This is where we come in. At Fountain Property Group we have high quality residential real estate suitable for people who want to build wealth through property.

A Quick Lesson on Monetary Policy

We have seen that low interest rates encourage investors into the property market. We also believe that people should go into these ventures with some understanding of the other factors that may affect market returns. Government monetary policy has a big influence on investor confidence, and understanding the cash rate is the key to understanding the movement of interest rates.

Our Reserve Bank, which operates independent of government, has three key responsibilities. They are to contribute to the stability of the currency, full employment and the economic prosperity and welfare of the Australian people. Having a stable financial system is fundamental to promote economic growth, and setting the cash rate is one of the tools the Reserve Bank uses to achieve this aim.

Cash Rate – a Definition

The cash rate is defined as the overnight money market interest rate. Decisions to change this rate are made by the Reserve Bank Board members who meet monthly and make these decisions based on a range of other economic data.

From a high of 17.5% in January 1990 to a low of 5% in August 1995, the cash rate remained relatively stable until it dropped to 3% in May 2009 in response to the GFC (Global Financial Crisis). Apart from a few minor corrections, the cash rate again hit 3% in December 2012 and has remained below that since. It currently sits at 1.75% with any adjustment made being in the order of -0.25% percentage points.

No Dramatic Changes Expected

The absence of unexpected fluctuations in the cash rate has given investors some certainty when making decisions about entering the property market. This does not mean that interest rates will not rise given the right circumstances, but as the cash rate has been stable for some time, the market is not expecting any dramatic changes any time soon.

The following two tabs change content below.

Mortgage Repayments – A Different Approach

Everyone with a mortgage looks forward to the day when the last payment is made and this financial commitment is no longer necessary. Whether the mortgage is over the family home or an investment property, the euphoric feeling is the same. With it come new possibilities as the money that has been set aside regularly for this purpose is now free to be used for something else.

Use New Strategies to Control your Mortgage

For many people this comes at the end of a long process, taking years to get to this point. How great would it be then, to take a different approach to mortgage payments, and look for ways to not only cope better, but even to shorten the duration by getting in front when it is financially possible?

By taking greater control over spending, and looking for ways to be smarter with your mortgage payments, you could even be in the situation where buying an investment property is possible. With some equity in your home, reasonable employment prospects and a good credit history, our people at Fountain Property Group could be starting you on the road to serious wealth creation.

First Things First

Let’s put first things first by offering some suggestions to better manage your current mortgage payments. Interest rates are at their lowest since the 1960s, and current indications are that they will remain low for some time. This is a great opportunity for a mortgagor to calculate repayments at a couple of points higher than their current commitment, and pay this amount off the existing mortgage. If rates do go up, you won’t notice it and you will be getting in front with every additional dollar you pay.

Don’t Waste Financial Windfalls

Often, situations occur that give us unexpected access to lump sums of money. The most common example is a tax refund, but it could also be a small lottery win or an inheritance. Most people with a mortgage spend these windfalls on consumable items, but with a little self-discipline, these could be applied to the mortgage.

Make More Frequent Payments

If your mortgage lender allows, making more frequent payments will reduce the term of your loan considerably. For example, paying a mortgage fortnightly instead of monthly will save thousands in interest payments by using simple maths. There are only 12 months in a year, but there are 26 fortnights. By paying this way, you are effectively making 13 monthly payments annually.

Save More and Spend Less

The suggestions that most of us don’t want to hear involve spending less and saving more. We are not suggesting that you withdraw from society, but some short-term pain ploughed back into your mortgage will put you in an excellent position in a few years. That investment property could well be within your reach.

The following two tabs change content below.

Low Interest Rates Continue – Let’s Party

Here in Australia we are so lucky to continue to experience low interest rates. Long gone are the days of escalating rates that took people’s homes and livelihoods away from them.

Through careful observation the Reserve Bank of Australia continues to monitor and control the rates we pay on our mortgages and keeps them as low as possible.

We are not suggesting for one minute that it is a good idea to go out and blow any spare cash you have. This is not what we recommend when we say – Let’s Party!

Rather, we are thinking more along the lines of:
1. Let’s get into the market and take full advantage of this great situation
2. Pay down your current mortgage as quickly as possible and then do the first point.

Now this is something to celebrate!
Imagine if you can, being able to pay down your mortgage in under five years. If this is your plan you could not hope for a better environment to do it in than when rates are low.

Once you have your money under control (and not the other way down) you free up your cash to do something worthwhile. Think of holidays, restaurants and theme parks with the children. Perhaps do a course and learn something new or even get into an investment property.

Property Investment – The Greatest Nest Egg
If you are dreaming of building a nest egg for you and your family then now is the best time to dive in.

The persistently low interest rates make it easy for you to move into the investment scene and build an empire to sustain you and your crew.

Fountain Property Group specialise in sourcing exactly what you need and can afford. We are not bound by territories and boundaries and are able to search for that unique and perfect investment wherever the market may take us.

Whether you are dipping your toe into this amazing, fortune building environment for the first time or you are a seasoned professional, we are able to source and provide the right property at the right price.

Whilst the days of escalating interest rates are long gone, they are not forgotten and they still provide the angst to deter and even stop an investor in his or her tracks.

It is essential that due diligence is conducted for each and every property that is considered. We do all the hard work for you and take the stress out of the decision making phase.

RBA Rate Cuts: How Low Can You Go?

The Interest Rate has dropped by 25 basis points to a historic 2% last 6 May 2015 to further stimulate the economy and has raised concerns on the current state of the housing market. The Reserve Bank, in its decision has shown signs of further rate cuts, stating that “The board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time”.

The expectations for the RBA to keep rates on hold have fueled fears of a bubble – like condition for the housing market, particularly in Sydney which might lead to financial instability in the near future.  Chief Economist for AMP Capital Dr Shane Oliver said that even with the risks involved, “It is dangerous to set monetary policy based on one city”.

Treasurer Joe Hockey has supported the RBA’s move to cut the official cash rate and has urged Australians to borrow more to further stimulate the economy.

With the RBA open for more cuts ahead, how low can the interest rates go?

The 25 basis point decrease in the official cash rate on a $300,000 mortgage has decreased the monthly repayment by $44, with the lowest variable rate down from 4.23% dropping to 3.98%, according to comparison website Mozo.com.au. If homeowners decide to pay the same amount prior to the rate cut, they cut their mortgage payments by 13 months.

Comparison website Finder.com.au is expecting rate hikes to start as early as February next year, with their survey expecting a rise to 4%, peaking at 7.1%. Borrowers are encouraged to make weekly and fortnightly payments to take advantage of the rate cuts. Better to take advantage before it’s too late.

The following two tabs change content below.

SQM Research: Interest Rate Cuts A Certainty

The official cash rate is currently at record low levels and has remained at 2.5% since 2013. Since then, more market analysts are convinced that interest rate cuts are ahead for 2015.

SQM Research recently forecasted interest rate cuts as a “dead certainty” if the Australian Prudential Regulation Authority pushes forward with their lending restriction plans. 2 of the big 4 banks, Westpac and NAB have also forecasted a rate cut for 2015, with the official cash rate dropping at least 2% this year.

The underperforming economy has been pointed out as a major factor in the rate reduction. It is expected that rate cuts as early as April will help boost the housing market.

Read more about this on the Adviser website.

The following two tabs change content below.

RBA To Consider Rate Cuts In 2015

The Reserve Bank has discussed the possibility of further rate cuts for next year, according to the recent release of their December 2 meeting – their last for the year.

The RBA decided to keep the interest rate at 2.5%, believing that this is enough to stimulate growth in the economy. However, further policy easing may take place early 2015 depending on the performance of key economic factors, such as the Australian currency and the inflation rate. The board members also agreed that the low interest rates have supported strong activity in the housing sector and that it is necessary to keep the rates at the current rate – and possibly lower, to support the strong market demand.

Read more about this on the Smart Property Investment website.

The following two tabs change content below.

2 of Australia’s Big Four Predict Rate Cuts

A second major bank has forecasted rate cuts for 2015, shortly after Westpac announced the same last week.

The National Australia Bank became the 2nd bank of the Big Four that forecasts the cash rate to drop by 0.25% to 2% as early as March next year, with a second rate cut expected in August. NAB’s forecast was driven by the low GDP growth for the third quarter, as well as unfavorable economic conditions and slow growth for the coming year.

Read more about this on the Adviser website.

The following two tabs change content below.

Pressure Growing For Interest Rate Cuts

The economy has taken another hit as the Australian dollar dips below US83¢, mounting pressure on the Reserve Bank to consider dropping the interest rates below 2.5%.

Economists have been pushing for monetary easing after GDP figures showed a soft economy as income growth has grown by a snail’s pace. The economy has expanded by a measly 0.3% for the third quarter – below the standard of 0.7%, taking the annual growth rate to a disappointing 2.7%.

Read more about this on the Zee News website.

Shift In Interest Rate Predictions For 2015

Economists have been nearly unanimous in predicting interest rate hikes for 2015 earlier this year – but that is about to change, as the slow growing economy might force the RBA to go the other way around.

With the Australian dollar plummeting to a four and a half year low and a slow gross domestic product growth, more bank economists are convinced that down is the way to go. Goldman Sachs recently changed their stance for next year, becoming the latest bank to shift their monetary predictions. Deutsche Bank recently predicted a 50 basis point reduction, dropping the interest rate to 2% for 2015.

Read more about this on the Sydney Morning Herald website.

Are Interest Rate Cuts Ahead For 2015?

The RBA is expected to go through the last meeting of the year with no surprises, as it is expected that the official cash rate will remain at the historic low of 2.5%. Despite previous predictions of a rate hike in 2015, more people are convinced that rate cuts are ahead, as the economy shows signs of weakness to end the year.

Bank based economists are still convinced that rate hikes are the way to go, but further easing could very well happen – with market economists expecting it to go as low as 2%, as the unemployment rate is predicted to peak to 6.75% in 2015.The country’s trade has also been affected as the price of iron ore has dropped to almost 50% from the start of the year.

Read more about this on the Sydney Morning Herald website.

The following two tabs change content below.