Yesterday (7th August 2018) the RBA Board decided to leave the cash rate unchanged at 1.50 per cent for its 22nd consecutive meeting.
“Conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low,” says RBA Governor Dr Philip Lowe.
“Housing credit growth has declined to an annual rate of 5 1/2 per cent. This is largely due to reduced demand by investors as the dynamics of the housing market have changed.
“Lending standards are also tighter than they were a few years ago, partly reflecting APRA’s earlier supervisory measures to help contain the build-up of risk in household balance sheets. There is competition for borrowers of high credit quality,” he said.
The RBA will next meet on Tuesday, 4 September 2018.
National house prices fell in July for the tenth consecutive month, according to CoreLogic figures released yesterday which showed a 0.6 per cent drop from June – bringing the annual rate of decline to 1.6 per cent, the fastest since August 2012.
CoreLogic attributed drawn-out declines in the Perth and Darwin markets and rapid drops in Melbourne and Sydney to the overall figure.
REA Group Chief Economist Nerida Conisbee says softening house prices will “figure into the equation” but are not the only contributing factor to the Reserve Bank’s decision.
“The big problem at the moment is that consumers aren’t spending enough,” she says.
“They have high debt levels, rising energy prices, they’re not getting the wage rises they’d like. And now for many in Sydney and Melbourne, the value of their homes is declining. So consumers aren’t happy.
“There’s also less need as lending rates are going up – most mortgages holders have had some incremental increases and, with the Royal Commission on, banks have been restrictive with lending.
“Businesses are positive, still hiring and spending money, but the Reserve Bank isn’t going to make a move until consumer sentiment improves.”
“The steady rate setting has a lot to do with stubbornly low inflation, record high household debt, a slack labour market and, more recently, falling dwelling values. Financial markets continue to expect that the cash rate will remain unchanged until at least January 2020,” says CoreLogic Head of Research Tim Lawless.
“While the cash rate has remained stable, mortgage rates have been tweaked, the extent to which depends on the borrower type and loan product. Over the same period of cash rate stability, the average standard variable mortgage rate has actually reduced by 5 basis points for owner occupiers and increased by 30 basis points for investors.
“Three years fixed rates for investors have increased by ten basis points and discounted variable rates are up 40 basis points for investment loans. Additional mortgage rate premiums are payable for borrowers who aren’t paying down their principal. Clearly, the stability in the cash rate hides a deepening complexity in mortgage products brought about by the heightened level of regulation and focus from both lenders and policy makers on improving credit quality.
“Despite the housing market headwinds from tighter credit conditions, the prospect of mortgage rates remaining reasonably stable should help to keep a floor under housing demand.”
1300HomeLoan Managing Director John Kolenda said the RBA looks unlikely to make any change over the next 12 months.
“The circumstances which have prompted the RBA to stay on the interest rate sidelines for a record-breaking two years see no signs of change,” Mr Kolenda said.
“There would need to be a dramatic improvement in the economy for the central bank to lift the cash rate and it is also aware of the potential negative impact this will have on consumers.”
Mr Kolenda said borrowing capacity for home loan customers continues to fall due to tighter lending conditions, while they are also facing some out-of-cycle rate increases from many lenders because of cost-of-funding pressures.
“Despite the cash rate being maintained at record lows, this is a very confusing and challenging time for borrowers,” he said.
“Cost of funding issues have forced some lenders to increase the rates of some home loan products by more than 30 basis points, while other lenders wary of the scrutiny of the Hayne Royal Commission are playing a wait and see game.
“It’s more important than ever though for mortgage holders to be on top of their home loan and with the expert assistance of a mortgage broker they can make sure they are getting the best deal possible. The main message in the current climate is not to be complacent about your home loan and allow yourself to be a mortgage prisoner.”
REINSW Deputy President Brett Hunter said it was important to keep interest rates on hold for the remainder of the year and into 2019 to support the property market.
“Weak underlying inflation has strengthened the case for RBA to leave rates on hold.
“The housing market requires this stability at the moment. We don’t anticipate a change until at least April 2019,” he said.
RateCity.com.au shows lenders have dropped fixed interest rates by up to 72 basis points on more than 120 products. Commonwealth Bank cut its fixed rates by 10 basis points, while ANZ cut some of its fixed rates up to 24 basis points.
Sally Tindall, research director at RateCity, said banks were slashing fixed rates in a bid to win market share.
“Growth in home lending has started to hit the brakes, while non-bank lenders are gaining traction. As a result, banks are throwing everything at fixed rates to keep new customers coming through the door,” she said.
“This makes it the perfect environment for refinancers, particularly if you have a bit of equity up your sleeve, but only if you’re willing to fix.
“While the cash rate is unlikely to increase before 2020, more than half a million variable rate customers have already been hit with higher rates due to cost of funding pressures, with more hikes expected to follow.
“If you like the security of knowing your rate won’t go up, then a low fixed rate could be the answer you’re looking for.
“With rates at near-record lows, now wouldn’t be the silliest time to fix.”