Australia set for another year of low rates

Sydney, Australia

Interest rates in Australia “aren’t going anywhere in a hurry” says experts, as the Reserve Bank of Australia keeps rates low for another year.

The Reserve Bank of Australia last week left the official cash rate at 1.50 per cent, which the Housing Industry Association welcomes as an “appropriate” decision.

“However, there has been a blanket tightening of credit conditions for investors over recent months, and owner occupiers are wary about the outlook for their borrowing costs as we continue to see banks moving unilaterally,” says HIA Senior Economist Shane Garrett.

“Our expectation is that the RBA will probably hold fire on interest rates over the remainder of the year, particularly with the pace of general price inflation so weak. This outlook is only likely to change should we see gyrations in the Australian dollar’s exchange rate large enough to warrant intervention by the RBA,”

“While low interest rates are always welcome from an affordability perspective, unlocking housing affordability remains a complex problem,” he adds. “Ultimately the solution lies in delivering on several fronts such as planning reform, increasing the supply of shovel-ready land, reducing the taxation burden on new housing and dealing with excessive infrastructure costs.

“As concern mounts over the pace of growth in existing property prices in Sydney, it is more important than ever to remember that Australia consists of a vast number of housing markets,” he concludes.


Good news for buyers Down Under as mortgages rates hit the floor

18th May 2016

Things are looking up Down Under for home buyers this month, as mortgage rates have hit the floor.

On 4th May, the Reserve Bank of Australia decided to reduce its Official Cash Rate by 25 basis points to just 1.75 per cent. The Board’s decision followed information showing inflationary pressures were lower than expected.

The historic low posed a big question for the housing market, notes Tim Lawless, CoreLogic Director of Research.

“On one hand we have economic growth tracking at 3 per cent per annum, a housing market where the pace of capital gains is moderating in a controlled fashion and relatively strong labour market conditions. Balance this with negative quarterly inflation and a high Australian dollar and it becomes clear that this decision probably could have gone either way.”

The question was how much the lower rate would be passed on to borrowers. Indeed, the spread between the cash rate and standard discounted mortgage rate has been widening since 2008 when there was 1.8 percentage points difference between the two rates. As of April 2016, the spread had doubled to be 3.65 percentage points.

However, most of the major banks (National Australia Bank, Westpac, Commonwealth Bank and Bank of Queensland) did decide to pass on the reduction to consumers, with ANZ Bank the only big four bank not to do so. The latter bank reduced its home loan rates by 0.19 of a percentage point.

The lower mortgage rates are likely to fuel demand from buyers, although the RBA is expected to be monitoring that closely to avoid fuelling further capital gain, particularly in the expensive markets of Sydney and Melbourne.

“Latest ABS data confirm that price pressures in the economy are very well contained,” says Housing Industry Association Senior Economist Shane Garrett.

“Against this backdrop, lower rates will provide real benefits to households and businesses right around Australia. Today’s rate cut represents a timely and measured initiative.”

“On previous occasions, the main banks have failed to fully share the benefits of lower rates with their mortgage borrowers,” adds Garrett. “Homeowners deserve to receive their fair share.”

“Over the past year, Australia’s labour market has seen real improvement with reductions in the unemployment rate and substantial growth in full-time employment. Lower interest rates should ensure that conditions in the job market continue to improve,” he concludes. “Both new home building and renovations activity can be expected to benefit.”