As a brokerage, we keep a close eye on the cash rate set by the RBA as this often informs what we can expect the lenders to be doing. If the cash rate goes up, historically so too have home loan interest rates.
RBA keeps dropping rates
Over recent years, the cash rate has been low and steady, however in November 2020 the RBA dropped the cash rate to 0.10 per cent. This is the lowest it has ever been. Since then, most lenders across Australia have dropped their home loan interest rates too, especially long term fixed rates. Some banks are offering fixed rates below 2% over a four year term (T&C’s apply of course).
RBA Governor Phillip Lowe has just this week announced that the RBA will not be lifting rates until 2024. To me, this simply does not make sense. I can appreciate that sometimes they take a stance on a particular situation, however surely given they are meeting on a monthly basis they should be considering the whole picture on a monthly basis and adjusting rates accordingly?
Australian markets are alright
The Australian economy and markets have actually performed surprisingly well given the year we had in 2020, which the cash rate was dropped in response to. The latest stats are very positive:
- Unemployment rate decreased to 6.4% in January 2021 (Source: ABS)
- Inflation increased in January 2021 by 0.2% up to 0.9% (Source: ABS)
- Lenders are still dropping fixed interest rates and increasing acceptable Debt to Income ratios
- National median housing prices increased by 2.1% in February 2021 and 4% for the quarter (Source: Core Logic)
- Business confidence is at an 11 year high (source: NAB Business Survey, Feb 21)
- Property purchase lending is up 77% on the same time last year (Source: Core Logic)
- Construction lending is up 328% compared to the same time last year (Source: Core Logic)
- Australia’s economy ranked number 1 in the G7 after growing 3.1% across the December quarter (Source: National Statistical Agencies)
The property market is booming
The property market in Melbourne has grown significantly in early 2021, with dwelling values growing 2.1% in January 2021 alone. Low interest rates means people can borrow more as repayments are lower (and this still applies, assessments rates are lower too). Low rates coupled with stamp duty discounts, first home buyer discounts and HomeBuilder means we are seeing properties selling for well over the quoted price. The outcome? Lots of people are being priced out at the minute or possibly even overpaying as they get caught up in the competitiveness in the market.
We will be watching with interest over the coming months and years to see what the RBA does.