At its meeting yesterday (1st May 2018), the RBA Board decided to leave the cash rate unchanged at 1.50 per cent for it’s 19th consecutive meeting.
REA GROUP
“More indicators are pointing to improving economic conditions and given how fast the US is growing, this will support our economy,” said REA Group’s Chief Economist, Nerida Conisbee.
“The main thing holding them from increasing rates are consumers, in particular the enduring impacts of low wages growth. Once wages start to increase again, it will further strengthen the need for a rate rise.”
“The market has slowed a lot and the concerns that were around last year have dissipated to a large extent,” she said.
CORELOGIC
“The Reserve Bank’s hold decision was widely anticipated, considering core inflation is only just nudging the bottom of the RBA’s target range at 2.0% and the labour market continues to show plenty of spare capacity with an unemployment rate of 5.5%,” says CoreLogic Head of Research, Tim Lawless.
“Of course, the heat has also come out of the housing market, with CoreLogic today reporting another slip in national home values in April, largely driven by weaker conditions in Sydney and Melbourne.
“Nationally, dwelling values have been moving through a controlled slowdown since October last year which has taken a great deal of pressure away from the RBA to lift rates in order to curb exuberance in dwelling investment.
“Housing investment has well and truly slowed without any direct intervention from the RBA, highlighted by the fact that credit growth for housing is tracking at an annual growth rate of just 2.5%.
“Macroprudential policies, which have led to mortgage rate premiums and tighter credit policies, provided the heavy lifting needed to slow down investment activity.
“While Friday’s Statement on Monetary Policy will provide better guidance around the RBA’s thinking, financial markets are still betting that the cash rate won’t rise until July 2019.
“Chances are that official interest rates are likely to be on hold for the foreseeable future, however it remains likely that the next move will be up, not down.
“Importantly, mortgage rates could be under some upwards pressure without any change in the cash rate, considering wholesale funding costs are rising as US interest rates push higher.
“Considering the record high levels of household debt and growing number of interest only loans transitioning to principal and interest terms, higher mortgage rates will test the housing markets resilience.
REINSW
REINSW President Leanne Pilkington said the fundamentals have remained relatively static, meaning the RBA has no impetus to adjust interest rates at this time.
“There’s a strong argument to leave the cash rate unchanged for the foreseeable future,” Ms Pilkington said.
“Given the downward slide in property prices, the marked drop in investor lending and other macro challenges to the economy – especially when the banks cannot be trusted not to hike rates independently, there is no need for the RBA to act.”
RATECITY.COM.AU
“If you’re someone that likes the security of knowing your repayments will stay the same when the market changes then now might be the time to consider fixing,” RateCity spokesperson Sally Tindall said.
“While most fixed-rate customers opt for a loan term under 5 years, there are lenders out there that will lock in rates until 2028.
“Right now, the major banks’ standard variable rate is sitting at 5.20 per cent, which makes RAMS’ offer of 5.64 per cent for 10 years look fairly level-headed.
“If rates were to rise by 2 to 3 percentage points, then the majority of Australians with a mortgage would likely be facing a rate starting with a 6,” she said.
ABS housing finance data shows fixing has fallen out of favour in line with record-low rates with the proportion of fixed loans dropping to just 14.4 per cent of all new borrowing in February.
“Historically, Australians have missed the window to lock in their rate at the bottom of the rate cycle, and instead fixed when rates were climbing,” she said.
“One of the most popular times in the past to fix was in March 2008, when around a quarter of all new loans taken out were fixed and the cash rate had peaked at 7.25 per cent.
“But with a cash rate at just 1.5 per cent today, and a nod from the RBA Board that rates are set to rise, now might be that window to consider fixing,” she said.
1300HOMELOAN
1300HomeLoan Managing Director John Kolenda said the interest rate hold has been comforting for mortgage holders in the current financial environment.
But Mr Kolenda said there are still concerns about future rate movements and the broader impact on the economy as major lenders have dramatically tightened lending criteria.
“It is uncharted territory and with the vast amount of pressure being applied to the banks as a consequence of the Hayne Royal Commission, we are more than likely to see rates on hold for a considerable time,” he said.
“Over the coming months, the impact of the tighter lending conditions will become evident and flow through to the property market. There are a number of dynamics at play, all of which present headwinds for lenders, borrowers, the property market, employment, economy and future rate direction.”
Mr Kolenda said by maintaining its holding pattern, the RBA has allowed mortgage holders to be relaxed and comfortable in a confusing lending landscape.
“Surprisingly, we have seen some heavy discounting on owner-occupied and principal and interest loans from the majors as they attempt to secure lending volumes through a consequence of a tougher lending environment,” he said.
“Borrowers should look to take advantage of this as it translates into thousands of dollars in savings. Clearly there has been a move away from investor and interest-only loans which has the banks focused on the other product segments. All of these changes in some way will flow through the property market.”
