At its meeting yesterday (3rd July 2018), the RBA Board decided to leave the cash rate unchanged at 1.50 per cent for its 21st consecutive meeting.
“Nationwide measures of housing prices are little changed over the past six months,”ย says RBA Governor Dr Philip Lowe.
“Conditions in the Sydney and Melbourne housing markets have eased, with prices declining in both markets. Housing credit growth has declined, with investor demand having slowed noticeably.”
“Lending standards are tighter than they were a few years ago, with APRA’s supervisory measures helping to contain the build-up of risk in household balance sheets.”
“Some further tightening of lending standards by banks is possible, although the average mortgage interest rate on outstanding loans has been declining for some time.”
REALESTATE.COM.AU
โWages should be increasing already given how confident businesses are and how employment is growing. Right now, non-cash incentives seem to be being offered to employees through better working conditions and nice workplaces. At some point however, this wonโt be enough and employees will demand more money. They will be able to do this as employment continues to grow and opportunities increase,โ said REA Group Chief Economist Nerida Conisbee.
Ms Conisbee believes that all banks are under pressure to raise rates, and while the big banks are able to hold off increasing for longer, at some stage they will have to follow suit.
โIt isnโt up to the RBA to stop this but it does lead to increased rates. If lending rates are going up without the RBA doing anything, it has the same impact of slowing down the economy.โ
โRight now, the economy could be doing a lot better or a lot worse than official data is showing. This means that decisions are made later than what may be optimal, or made on outdated data. So this is good news.โย she said.
CORELOGIC
“Economic conditions remain reasonably stable, housing market growth continues to slow, household debt is at record highs, and inflation remains around the lower end of the RBA target range,”ย says CoreLogic Head of Research, Tim Lawless.
“With this scenario as a backdrop, the hold decision today from the RBA was widely anticipated. It is looking increasingly as if the cash rate will hold at record lows throughout 2019; this is the view of financial markets where the ASX cash rate yield curve indicates the cash rate will remain on hold until at least November 2019.”
“However, focus is now moving to mortgage rates, where we are increasingly seeing upwards pressure from overseas funding costs. Already, smaller banks and non-banks, who are generally more exposed to wholesale debt costs, are pushing interest rates higher for select mortgage products.”
“Larger banks, who are more reliant on domestic deposits to fund their home loans, have less exposure to higher funding costs. However it is likely margin pressures are becoming evident across the big end of town as well.”
“Despite these early signs of some upwards pressure on mortgage rates, average variable rates remain almost 120 basis points below their decade average of 6.4 per cent. Borrowers, particularly owner occupiers with principal and interest loans, should continue to expect a low mortgage rate over the medium term.”
1300HOMELOAN
1300HomeLoan Managing Director John Kolenda said while mortgage holders will appreciate the stability of the cash rate being on hold, they are currently experiencing out of cycle rate increases from many lenders because of cost of funding pressures and regulatory requirements.
โBorrowing capacity for consumers has dropped up to 30 per cent over the past quarter and the borrowing parameters vary by lender, making it very challenging for borrowers to understand how much they can borrow and from whom,โ Mr Kolenda said.
โCost of funding issues has forced some lenders to increase the rates of some home loan products by more than 30 basis points, while other lenders play a wait and see game under the spot light of the Hayne Royal Commission, but they have the same pressure to increase rates out of cycle.
โThe expert guidance of an experienced mortgage broker has become more important than ever for consumers in the current environment. There is no reason for home owners to be mortgage prisoners and that is where brokers come into their own helping clients.
โThey can guide new home loan customers through the more stringent application process and enable existing mortgage holders to secure the best terms and interest rates through their access to a wide variety of lenders.โ
REINSW
REINSW President Leanne Pilkington said the hold pattern remains appropriate in the current climate.
โGlobal economic forces, the widening wage gap between older and younger working Australians, and outcomes of the banking Royal Commission might all impact the RBAโs outlook in the near term,โ she said.
โBut for now itโs important that interest rates remain steady,โ Ms Pilkington said.
RATECITY
RateCityโs database shows 13 lenders have increased some of their home loan rates in recent weeks by as much as 40 basis points.
Sally Tindall, spokesperson for RateCity.com.au, said that with home loan rates as low as 3.44 per cent, now is the time to refinance.
โHundreds of thousands of home loan customers about to be hit with higher repayments this month, even though the RBA has left the cash rate on hold in July,โ she said.
โIf you take an average rate hike of 25 basis points, for a $300,000 home loan youโre looking at paying an extra $540 per year โ thatโs not small change.
โFor the people who bought at the peak of the market and are overstretched already, they are not going to be able to find those dollars easily.
โThe good news is that these hikes only apply to the variable rate customers and those borrowers can switch without having the excessive break fees that fixed rates have.