Here’s a bit of welcome news for mortgage holders: Australia’s record-low cash rate is likely to remain in place until 2023, according to leading economic and property experts.
In March, the Reserve Bank of Australia (RBA) called an emergency meeting, cutting the cash rate for a second time that month and taking it to a record-low of 0.25%.
It capped off an action-packed 12 months, with a total of five rate cuts since May 2019.
But for avid followers of the RBA’s cash rate, “the next few years are likely to be pretty boring”, says AMP Capital chief economist Shane Oliver.
CoreLogic, the nation’s largest provider of property information and analytics, predicts the cash rate will stay at 0.25% until 2023.
“The RBA has previously been clear that the cash rate won’t move higher until inflation is well within the 2-3% target range and labour market indicators are trending towards full employment, implying an unemployment rate around the 4.5% mark,” says CoreLogic.
However, the RBA has recently indicated unemployment is likely to peak around 10% in June and inflation could turn negative over the coming months.
“Arguably, it’s safe to assume neither of these indicators [inflation or unemployment] will be in a position to trigger an increase in the cash rate target for at least the next couple of years,” CoreLogic adds.
Westpac Chief Economist Bill Evans agrees with that timeframe, as does AMP’s Mr Oliver.
“We expect that the overnight cash rate is unlikely to be lifted before December 2023,” says Mr Evans.
Put simply: the current cash rate means extremely low mortgage rates, and tough competition amongst lenders.
“Average variable mortgage rates for owner-occupiers are below 3% while investor variable mortgage rates are in the low 3% range,” CoreLogic says.
“Fixed-term mortgage rates are even lower. Such a low cost of debt is a key factor that should help to support housing demand as the economy emerges from the COVID-19 hibernation.”
Well, with all the above in mind, now’s a great time to consider your refinancing options.
And CoreLogic says it’s already seeing more and more homeowners do just that.
“We continue to see refinancing … at elevated levels relative to the same time last year as mortgagors seek out the most competitive interest rates available,” it says.
So, if you too would like to explore your refinancing options, then please get in touch – we’re ready to jump into action and make it happen for you.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
With interest rates at record low levels, today we’ll look at a question that many are asking: should I lock in a fixed rate home loan?
You may have recently received a call directly from your bank, or seen more ads than usual across the internet spruiking super low fixed-rate mortgages.
Here’s why: lenders are scrambling over one another to lock-in customers right now.
And their weapon of choice? Fixed-rate home loans.
With so many families doing it tough right now, locking in a low fixed interest rate can be an appealing option to reduce your monthly repayments and obtain peace of mind.
And while it may very well be a good route for your family, like most things in life, it’s important to weigh up the pros and cons before you leap.
Let’s get the obvious one out of the way: banks are not promoting fixed-rate home loans right now as an act of goodwill.
They’re there to sell a product. And they often use this product in particular when they’re trying to stop clients from walking away. Not only are you locking in a rate, but the lender is locking you in, too.
We all know the big benefit of locking in a fixed rate: you get a guaranteed low rate for however many years you lock it in for.
But it also comes with a downside, which is: if things improve and you want to pay your loan off quicker, switch products, or switch lenders, you don’t have the flexibility to do so.
Indeed, breaking a fixed home loan can be expensive, often costing anywhere between thousands and tens of thousands of dollars.
The Reserve Bank of Australia (RBA) cut the cash rate to a record low of 0.25% in March – the second rate cut that month.
Now, most experts believe this is as low as the RBA will go – and even RBA governor Philip Lowe has made it clear that he regards 0.25%, rather than zero, as the “effective lower bound” for official interest rates.
But that doesn’t mean the banks can’t drop their interest rates lower independent of official RBA rate cuts.
As mentioned above, competition in this space has been heating up recently and lenders are all eager for a bigger slice of the pie.
All that said, there are times when locking in an interest rate may be the best option for you and your family.
The big one is if your circumstances have recently changed and you’re seeking some stability.
This includes if you’re starting a family and you’re going from two incomes to one. Or if you or your partner’s income has been affected by COVID-19 and you’re wanting to lower your monthly repayments instead of seeking hardship options.
Another key factor is if you can’t sleep at night because you’re worrying that rates will go up. That said, it’s worth noting that the RBA recently stated: “the cash rate would remain at a very low level for an extended period”.
Like many things in life, when it comes to home loans, there’s no one-size-fits-all solution.
While locking in a fixed rate home loan may help you secure a lower interest rate during this time of instability, it also comes with a few drawbacks.
So if you’d like to find out if locking in a fixed rate is a good fit for you, give us a call. We’re happy to run through all your options with you – not just the one product!
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
Found yourself with extra time on your hands? Slightly worried about meeting your home loan repayments? Want to make use of those back-to-back rate cuts? While the world has changed significantly over the past month, it’s possible to use some changes to your advantage.
Before we go any further though, we want to say we understand there’s no shortage of Aussie families doing it tough right now. And we want to reassure you that we’re here to help you any way we possibly can – including helping you apply for support packages with your lender.
So where does refinancing fit in?
Well, the many social and financial changes that have been thrust upon us recently have combined to make it a good time to consider refinancing your home loan.
Here are five reasons why you may want to consider doing so.
When was the last time you refinanced your home loan?
If your answer was ‘one year ago’ (or longer), the finance and lending landscape has changed dramatically since then and it might be time to catch up.
There have been five RBA cash rate cuts since then since June 2019 – including two last month.
And while we’re on the RBA, a recent study of theirs found that borrowers who refinance with another lender, or negotiate a better deal with their existing lender, do in fact achieve interest savings.
So if you or your partner have recently had your work hours cut back and you’re starting to worry about how you’ll meet your monthly mortgage repayments, refinancing could be a more suitable option than applying for a hardship variation on your loan.
Refinancing can also help you consolidate your other debts – including your credit card, car loans or personal loans – by combining them into a refinanced mortgage.
Not only will this give you one simple repayment to make each month (reducing the risk of forgetting payments and being slugged with a late fee), but all your debts will be charged at your home loan interest rate – which is usually much lower than credit card rates, for example.
Fixed rates have recently experienced a big drop.
In fact, Domain’s David Hyman has described the current batch of fixed interest rate loans as “staggeringly cheap”.
“Only a couple of months ago the cheapest headline rate started with a three. If you look back to this time last year rates were in the high threes,” Hyman explains.
“For someone with a half a million dollar mortgage, that is well in excess of $10,000 a year in savings. It’s never been a better time to refinance quite frankly.”
And with the official RBA cash rate now at a record low 0.25%, there isn’t a great deal of room for it to go much lower.
One of the more common reasons home owners give for not refinancing is that they simply don’t have the time do so.
But, without pointing out the obvious, I think it’s fair to say that we have far fewer social commitments taking up our time at present.
So, if you’ve compiled a list of things to do to keep busy at home, consider adding refinancing to the list.
Once you get the ball rolling on it and get in touch with us you’ll be surprised how little you actually have to do – after all, that’s our job, right?
Finally, rest assured that we’re available and here to help you any way we can.
During trying times like these we know that we need to support each other now, more than ever.
So if you’d like us to help you explore your refinancing, hardship variation, or support package options then please get in touch – we’re ready to jump into action and make it happen for you.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
The Reserve Bank of Australia (RBA) has cut the cash rate to a record low of 0.25% following an emergency meeting due to the impact the coronavirus is having on the economy.
RBA Governor Philip Lowe said in a statement the move was due to the virus causing “major disruptions to economic activity across the world”.
“This is likely to remain the case for some time yet as efforts continue to contain the virus,” said Governor Lowe.
Governor Lowe added the cash rate cut would help support jobs, incomes and businesses so that when the health crisis recedes, the country will be well placed to recover.
“The Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3% target band,” said Governor Lowe.
That’s right. And ordinarily, the RBA board only meets on the first Tuesday of every month. But as we’re all well aware, these aren’t ordinary times so an emergency RBA Board meeting was called.
The RBA last held its regular meeting on March 3 and cut rates to 0.5% because it believed the coronavirus outbreak was going to hit the economy hard.
However, over the past fortnight, global financial markets have been in freefall as countries all around world reel from the economic fallout of the COVID-19 pandemic.
It’s worth noting that lenders don’t automatically reduce your monthly repayments when they drop interest rates.
With this being the second RBA cash rate cut this month – and the fifth since June 2019 – if you need some extra financial breathing space each month due to the coronavirus outbreak then please get in touch.
We’re ready to work through your options with you, whether that be asking your lender to drop your monthly repayments, discussing budgeting tools, refinancing, or seeking hardship arrangements.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
First home buyers are throwing themselves into the property market in numbers not seen since 2009.
The number of owner-occupier first home buyer loan commitments reached its highest point in ten years in January, with newcomers taking out 9,945 loans (seasonally adjusted), according to ABS data.
That’s a 3.2% rise on the previous month and a 20% increase on January 2019 (7921 loans).
A recent upwards trend in the home loan market was also reported in figures released by The Australian Prudential Regulation Authority (APRA).
The APRA data showed a 12.4% increase in the value of new housing loans settled by authorised deposit-taking institutions (aka lenders) in the December 2019 quarter.
Two things, mainly.
The first is the federal government’s First Home Loan Deposit Scheme.
The scheme, which started on January 1, can allow first home buyers to purchase a property with a deposit of 5% without having to pay Lenders Mortgage Insurance (LMI).
As of late February, it was reported that the majority of the 5,000 places available through 25 non-major lenders for this current financial year were still available to be reserved by potential first home buyers. So if you’d like to find out more get in touch!
The other main contributing factor to the growth spurt in first home buyer numbers is low rates.
Earlier this month the Reserve Bank of Australia (RBA) cut the official cash rate by 25 basis points to a new record low of 0.50%.
This came after three cash rate cuts in 2019, with the latest as recent as October.
And interestingly, RBA Governor Philip Lowe has hinted more rate cuts could be on the way in coming months, saying the RBA will continue to closely assess the implications of the coronavirus
For those thinking of entering the property market for the first time there’s a lot of recent changes to consider – including the record-low RBA cash rate and the federal government’s First Home Loan Deposit Scheme.
So if you’re thinking about purchasing your first home soon, get in touch today, we’d love to help you through the process.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
The Reserve Bank of Australia (RBA) has cut the official cash rate by 25 basis points to a new record low of 0.50% as the coronavirus outbreak impacts global financial markets.
RBA Governor Philip Lowe said the coronavirus has clouded the near-term outlook for the global economy and global growth in the first half of 2020 will be lower than earlier expected.
“Prior to the outbreak, there were signs that the slowdown in the global economy that started in 2018 was coming to an end,” Governor Lowe said in a statement.
“It is too early to tell how persistent the effects of the coronavirus will be and at what point the global economy will return to an improving path.”
The RBA previously cut the official cash rate to 0.75% in October, which was the third interest rate cut in 2019.
Governor Lowe also hinted that more rate cuts could be on the way in coming months, saying the RBA will continue to monitor developments closely and assess the implications of the coronavirus for the economy.
“The Board is prepared to ease monetary policy further to support the Australian economy,” Governor Lowe said.
Prime Minister Scott Morrison earlier in the day said he expected the big banks to “do the right thing” by Australians and pass on any rate cut in full.
“And honestly, I don’t see it any different to what Qantas did when we called out to Qantas and we said, we need your help to get some people out of China,” the Prime Minister said.
With this being the fourth RBA cash rate cut since June 2019, it can get a bit confusing as to just how much of these cuts your lender is passing on to you.
The good news is we’re following the market closely and can tell you which lenders pass this fourth rate cut on to their customers in full, and which lenders don’t.
So if you’d like to find out, then please get in touch – we’d be happy to help break it down for you.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
Once upon a time you were rewarded for loyalty. But borrowers with older mortgages are typically paying a higher interest rate than customers on new loans, confirms the Reserve Bank of Australia (RBA).
The RBA’s study finds that the difference in interest rates between new and outstanding variable-rate home loans increases with the age of the loan.
For example, for loans written four years ago, borrowers are charged an average of 40 basis points higher interest than new loans.
“For a loan balance of $250,000, this difference implies an extra $1,000 of interest payments per year,” explains the RBA.
And for loans more than eight-years-old, on average, you pay about 60 basis points more than a new customer.
The RBA says the difference in rates between older and newer mortgages can be partially explained by a shift in the mix of different types of variable-rate mortgages over time.
“In particular, the share of interest-only and investor loans in new lending has declined noticeably in recent years and these tend to have higher interest rates than other loans,” the RBA says.
“Nevertheless, even within given types of mortgages, older mortgages still tend to have higher interest rates than new mortgages.”
Here’s the real kicker, though. With competition for borrowers intensifying over recent years, banks are offering large discounts on their standard variable rates (SVRs).
What’s an SVR? It’s the reference rate that a bank prices its variable-rate loans against.
Basically, it’s the interest rate that banks and media quote when they report whether or not a rate cut is being passed through to customers.
But, as the RBA points out, very few borrowers actually pay interest rates as high as the SVR.
Instead, most borrowers are on advertised rates that are “materially lower” than a lender’s SVR, or have negotiated a further discount – and those discounts are getting bigger and bigger each year.
“In recent years, the average discounts relative to SVRs offered by major banks on new variable-rate mortgages have grown, widening from around 100 basis points in 2015 to more than 150 basis points in 2019,” the RBA says.
“By increasing the discounts on rates for new or refinancing borrowers over time, rather than lowering SVRs, banks are able to compete for new borrowers without lowering the interest rates charged to existing borrowers.”
The discounts borrowers receive on loans are usually fixed over the life of the loan. However, the good news is that they can be renegotiated.
“Well-informed borrowers have been able to negotiate a larger discount with their existing lender, without the need to refinance their loan,” explains the RBA.
So, if you’d like to put yourself into the RBA’s “well-informed borrower” category, then get in touch with us today.
We’d be more than happy to help you refinance your home loan, whether that be renegotiating with your current lender or looking around elsewhere.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
A question that’s been popping up a bit lately has been ‘why didn’t my lender reduce my repayments when the interest rate fell last year?’
It’s a good and timely question considering the big four bank economists all expect the RBA to cut the cash rate by 25 basis points to a new record low of 0.5% on February 4.
This question was debated in November by the House of Representatives’ standing committee on economics during its review of Australia’s four major banks and other financial institutions.
In the red corner you have Dr Andrew Leigh MP, the committee’s deputy chair. In the blue corner you have ANZ CEO Shayne Elliott.
Dr Leigh suggested the bank’s default position – to keep repayments at the same level until the customer requested that they be reduced – was not in society’s best interest.
Essentially, Dr Leigh’s argument was that if banks automatically reduced the repayments then customers would have more money in their back pocket to spend each month. As such, the flow-on effect would have a more positive impact on the nation’s economy.
However, Mr Elliott strongly disagreed.
Mr Elliot said the bank’s default position – to keep repayments at the same level, regardless of the interest rate cuts – was in the customer’s best interest because it helped them repay their loan quicker.
“I find it hard to imagine that I could ever push an argument that it is in my customer’s interest to have [a loan] for longer,” said Mr Elliot.
“Maybe we can be better at communicating. But we contact every single customer every single time there is a rate cut and offer them a chance to review their interest rate and lower their payments.”
According to Mr Elliot, just 7% of home loan holders opted to reduce their repayments off the back of the interest rate cuts last year.
Now, we don’t advocate any particular side of the argument. Basically it will boil down to your individual situation and what you believe is in your best interests financially.
But if you do decide that you’d like to reduce your repayments then get in touch and we can help you make the request with your lender.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
You know that infuriating habit the big banks have of failing to pass on the RBA’s cash rate cuts in full? Well, it’s finally triggered the federal government to order an inquiry into home loan pricing.
The inquiry, which is being conducted by the Australian Competition and Consumer Commission (ACCC), comes just weeks after the Reserve Bank of Australia (RBA) slashed the official cash rate by 25 basis points for the third time this year to a record new low of 0.75%.
What really drew the ire of the public and politicians alike, however, was that the big banks only passed on between 0.13% and 0.15% (out of 0.25%) of the latest RBA cut to customers.
This is after they only passed on 0.40% to 0.44% (out of 0.50%) for the previous two RBA cuts.
Treasurer Josh Frydenberg said if the big banks had passed on the recent rate cuts in full, a family with a $400,000 mortgage would be paying around $2,200 a year less in interest payments.
That compares to the $1,680 they’re saving from the 57 basis point rate cut that they are currently getting (on average), he added.
“In other words, families would be $519 better off if the banks had passed on the rate cut in full, not just a part of it,” Treasurer Frydenberg said.
The ACCC will investigate a wide range of issues – on top of why RBA cuts aren’t always passed on in full – including the rates paid by new customers versus existing customers (in other words: the ‘loyalty tax’).
In addition, the inquiry will consider what prevents more consumers from switching to cheaper home loans.
“We have evidence that customers can save considerable money by switching providers, and we want to fully understand what the barriers are that stand in their way, particularly barriers created by the banks,” ACCC Chair Rod Sims said.
“It is also very difficult for customers to find out what mortgage rate they could pay with another financial institution, without going through a lengthy and time-consuming application process.”
Mr Sims added the inquiry will aim to provide answers to the questions that banking customers have long asked.
“For example, there is an unusually large difference between the headline rate and the actual rates many customers are paying, which can be confusing for consumers,” he said.
The ACCC is expected to produce a preliminary report by the end of March 2020, with a final report due 30 September 2020.
All in all, the ACCC inquiry is aimed at increasing transparency when it comes to how banks price their home loans.
The good news for you is that you’re not alone. If you ever have a question about your home loan that you need clarity on, all you need to do is get in touch with us. We’d be more than happy to look into it.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
The Reserve Bank of Australia (RBA) has cut the official cash rate by 25 basis points to a new record low of 0.75%. But will the banks pass on the interest rate cut in full to you?
RBA Governor Philip Lowe said this third rate cut in five monetary policy meetings was made to support employment and income growth.
“The Board also took account of the forces leading to the trend to lower interest rates globally and the effects this trend is having on the Australian economy and inflation outcomes,” he said in a statement.
“It is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target.”
The RBA previously cut the official cash rate on July 2, just one month after making its first rate cut in almost three years (since August 2016).
Now the real question is: will you benefit?
This little infographic by the ABC makes for pretty interesting reading.
It shows just how much of the last two RBA rate cuts each of the big four banks passed on to its customers in June-July.
Indeed, not one of the big four banks passed on both rate cuts in full, with each bank passing on somewhere between 0.40-0.44% (out of 0.50%).
As such, it will be worth keeping an eye on just how much of this most recent rate cut your lender passes on, not to mention how that stacks up against the competition.
With three RBA cuts so close together, it can get a bit confusing as to just how much of these cuts your lender is passing on to you.
The good news is we’re following the market closely and can tell you which lenders pass this third rate cut on to their customers in full, and which lenders don’t.
So if you’d like to find out, then please get in touch – we’d love to help break it down for you.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.
