Home loan comparison website RateCity.com.au expects the Reserve Bank to cut rates at the June meeting, and then again as early as August.
RateCity’s research director Sally Tindall said cutting rates was no longer an “if’, but “when” scenario for the RBA.
“Governor Lowe has been extremely hesitant to cut the cash rate, but he’s working against a backdrop of rising unemployment, falling inflation and less than impressive wages growth,” she said.
“If he doesn’t cut tomorrow, he’ll catch much of the nation by surprise.
“The decision seems close to a foregone conclusion. The one thing that could hold him back is the fact that he only has a few trump cards left in his hand before he bottoms out, but he’s made it very clear he’s prepared to play.”
RateCity’s forecast for two cuts would take the official interest rate down to 1 percent.
If the cash rate is cut to 1 percent, owner occupier variable home loan interest rates are set to drop below 3 per cent, while investor rates could fall as low as 3.24 per cent.
“If a rate cut does happen, there will be pressure on the banks to pass it on in full.
“Banks have been hiking rates since 2017 due to the high cost of funding, but this pressure has dissipated, so the next RBA cut should, in theory, be passed on in full.
“That said, it’s been a tough year for the banks in a slowing home loan market, so some lenders may choose to hold part of the cut back,” she said.
Interest Rate Hits An All-Time Low: What Does It Mean For The Gold Coast Market?
GLITTER Strip borrowers could have more than $20,000 back in their pockets after the Reserve Bank of Australia cut interest rates to an all-time low of 1.25 per cent.
The cut from 1.5 per cent to the official cash rate was welcomed by Gold Coast heavyweights.
Ray White Surfers Paradise chief executive officer Andrew Bell said the cut alongside the Coalition’s federal election win would create stability in the real estate market.
“It gives people a sense of where the market is going,” he said.
“They now know the government policies for the next three years and they get a sense that interest rates will remain low for some time and these are good signals for the marketplace.
“This is the perfect climate to enact your buying needs.”
The average home loan size is $384,700, according to the Australian Bureau of Statistics (ABS).
Finder.com found the cut could lead to savings of almost $700 per year, or almost $21,000 across a 30 year loan.
CoreLogic head of research Tim Lawless echoed Mr Bell’s sentiments and said it would further boost the property market.
“The move by the RBA to cut rates was widely expected and no doubt the focus will now turn to mortgage rates — how low will they go?,” he said.
“Mortgage rates for owner occupiers are already around the lowest level since the 1960s and lenders are generally expected to pass on most, if not all of the cash rate cut to mortgage interest rates.
“Lower mortgage rates, together with the likelihood of lower borrower serviceability assessments if Australian Prudential Regulation Authority (APRA) delivers on a relaxation to the base serviceability rate later this month, as well as renewed confidence following the federal election, are likely to see an improvement in housing market activity.”
Gold Coast Central Chamber of Commerce president Martin Hall said the cut would allow locals to further enjoy the live, play, work approach of the city.
“Anything that makes the art of doing business easier for small and medium businesses, or any business on the Coast, is welcomed,” he said.
“In the lead up to what will be an interesting state election, focus on business is as important as ever. Now is the time for small businesses to have a big voice.”
The Commonwealth Bank (CBA) and the ANZ were the first of the big four banks to announce reductions to its rates after yesterday’s announcement by the Reserve Bank.
The CBA said it would pass the cut on in full, and the ANZ said it would reduce its variable rates for owner-occupier and investor loans by 0.18 percentage points from June 14.
Homeowners with a $500,0000 mortgage will save an extra $73 a month if their bank passes on the full cut.
Treasurer Josh Frydenberg said the interest rate cut and lower income tax could benefit two-income families to the tune of $3000 a year.
APRA Moves to Scrap 7pc Loan Buffer
In a move that is most likely to benefit owner-occupiers and the wider property market, the Australian Prudential Regulation Authority is proposing the 7 per cent serviceability buffer on home loans be removed.
With housing prices continuing to fall sharply in Sydney and Melbourne, APRA’s unwinding of its restrictions is part of a coordinated action by the prudential regulator, central bank and government.
The decision, in the wake of the weekend’s federal election, will provide banks with credit growth and reduce pressure on margins by lessening the need for rate cuts.
This may be more good news for the banks, following their big rise in the markets on Monday, but the news could also have negative implications on Australian household debt levels.
The banking regulator said it was putting its 7 per cent minimum interest rate “floor” under review, because the policy may have reached its use-by date after reviewing its “appropriateness”.
APRA first introduced the serviceability guidance in December 2014 as part of its efforts to reinforce sound residential lending standards in an attempt to temper ballooning house prices and surging housing investor loan growth.
They required the banks to assess all home loans against a floor of 7 per cent or 2 per cent above the rate paid by the borrower, whichever was higher.
Banks have typically added a further 25 basis points to the 7 per cent threshold taking it to 7.25 per cent and a buffer of 2.25 per cent.
If the changes were to go ahead, authorised deposit-taking institutions (ADIs) would “be permitted to review and set their own minimum interest rate floor for use in serviceability assessments”.
“APRA introduced this guidance as part of a suite of measures designed to reinforce sound residential lending standards at a time of heightened risk,” APRA chairman Wayne Byres said.
“Although many of those risk factors remain – high house prices, low interest rates, high household debt, and subdued income growth – two more recent developments have led us to review the appropriateness of the interest rate floor.
“With interest rates at record lows, and likely to remain at historically low levels for some time, the gap between the 7 per cent floor and actual rates paid has become quite wide in some cases – possibly unnecessarily so.
“The changes, while likely to increase the maximum borrowing capacity for a given borrower, are not intended to signify any lessening in the importance that APRA places on the maintenance of sound lending standards.
“Rather, it is simply recognition that the current interest rate environment does not warrant a uniform mandated interest rate floor of 7 per cent across all products.”
The proposed revision comes as financial markets are anticipating the Reserve Bank will lower official interest rates to 1.25 per cent in the coming months.
In an attempt to rebound lending growth, APRA has been quick to support the banking sector, removing its 10 per cent growth cap on investor lending and 30 per cent limit on interest-only lending.
Lowering the floor could also provide some welcome support for the stricken housing market, following a 10 per cent slide in national house prices.
APRA has set a four-week consultation period on the proposals, closing on 18 June, but they are expected to be confirmed.
Aussie hotspots enjoying a sudden property boom
Property prices across the country saw their steepest fall in 15 years in 2018, bringing them back to 2016 levels in what has been a housing downturn like no other.
But it’s not bad news everywhere – while investors shy away from Sydney and Melbourne, there are some hotspots which are enjoying a sudden property market boom, according to news.com.au.
The South East and Gold Coast regions are seeing the most buying activity, with Brisbane, Moreton Bay, the Sunshine Coast and Ipswich booming along with the Gold Coast, Tugun and Burleigh Heads.
Unsurprisingly Hobart is the strongest property market, although activity has spread beyond the inner city and into the middle and outer rings, while Launceston has also recorded solid interest.
The entire South Australian capital is booming, although most activity is happening in the inner city and Adelaide Hills.
New South Wales
While many investors have deserted Sydney, areas such as Paddington and Winston Hills and the nearby Central Coast are doing well.
Other booming areas are further north in Tweed Heads and Byron Bay.
View from the experts
Daniel Walsh of investment buyer’s agency Your Property Your Wealth, told news.com.au that investment activity has now firmly shifted to Queensland.
“We’re seeing rising demand particularly in the housing sector in southeast Queensland where yields are high and jobs are increasing due to the amount of government expenditure around infrastructure which is attracting families to the Sunshine State,” he said.
“With Brisbane’s population growth at 1.6 per cent and surrounding areas like Moreton Bay at 2.2 per cent, the Sunshine Coast at 2.7 per cent and Ipswich at 3.7 per cent, we are forecasting that Brisbane will be the standout performer over the next three to five years.”
Realestate.com.au chief economist Nerida Conisbee agreed, telling news.com.au Sydney investors especially had started to turn their attention north.
“Interest is strong in the Gold Coast across the board although there’s more action on the south side in places like Tugun and Burleigh Heads,” she said.
She added there was also a notable trend towards Tasmania, Adelaide and pockets of NSW such as Tweed Heads and Byron Bay.
Adelaide has also been flagged as finally booming after recently hitting the highest median house price ever recorded, largely driven by jobs and economic growth off the back of defence contracts, the announcement of the new Australian Space Agency and other investment in the area.
“Inner Adelaide, beachside and the Adelaide Hills tend to have the most activity but there’s also quite a lot of rental demand in low-cost suburbs so we’re expecting to see a bit more investment there in those really cheap suburbs over the next 12 months,” Conisbee said.
“There you can get houses for $250,000 so for an investor, it’s a relatively low cost in terms of outlay and the area is seeing really strong rental demand which means you’re more than likely to get tenants, so for investors it’s a really attractive area,” she said.
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