Variable Interest Rate Decrease

As you are aware, on October 3rd the Reserve Bank of Australia announced that it would be acting to lower the cash rate by 25 bps (0.25%).  All major and "second tier" lenders have since announced reductions to their standard variable rates in the range 0.17% to 0.25%.  For prospective property purchasers this will have several effects:

  1. It means that borrowing costs will be approximately 3% lower
  2. For many it will also increase your borrowing capacity.  However, I generally counsel that borrowers should structure their maximum borrowings based on their income, their normal or anticipated future living expenses, and loan servicing costs at longer termrates.  

  3. It may have the consequence of bringing more buyers into the property market which in turn could lead to an increase in house prices in some areas.  After all, one of the reasons behind the RBA's move is to stimulate the economy in interest rate sensitive sectors.

Interest Rate Outlook

There is a 50% chance that the RBA will lower the cash rate by a further 0.25% in November, with the other possibility being that it may hold off until February next year.  The major determinant of this could be the CPI figure released at the end of October.  Longer term fixed interest rates continue to fall with most lenders offering 4 and 5 year fixed rates at less than 6% pa; in most cases this is lower than their current discount variable rate.  This is a strong demonstration that money markets have formed the view that variable interest rates will remain at the current level, or lower, for some considerable time.

If you would like some more information about any of the above, please call me and I will be happy to assist.