Could There Be A Cash Rate Cut For Christmas?
When you’re in the Sydney market to buy a home, one of the biggest concerns for you will be about financing.
On one hand, you might be weighing up your total income against property prices to see just what exactly you can afford. On the other, you’ll have to think about interest rates. Will they rise? Will they fall? Is it better to get a fixed or a variable home loan?
Many of the answers to these questions are tied to the cash rate decision. As the coming month approaches, so does another opportunity for the Reserve Bank of Australia (RBA) to alter the cash rate or keep it fixed.
Jingling the bells on the cash rate
As we’ve talked about, the Reserve Bank of Australia (RBA) opted to keep the cash rate at 2 per cent over November. This is a historical low that has continued to drive low interest rates over the past few months. As mentioned by QBE’s Australian Housing Outlook 2015-2018 report, this has pushed investment borrowing up by 24 per cent in 2014-2015 when compared to 2013-2014
With less incentive to save, more consumption, especially in this peak period, could be the key to accelerated growth in this sector of the economy.
Still, there are some that are calling for an even further cut – and they aren’t all voices from the property industry. As mentioned by a November 4 release, the Australian Retailers Association (ARA) are knocking on the RBA’s doors and encouraging a cash rate cut. With Christmas coming in sooner than a month’s time, the busiest and most lucrative period for the retail industry is right around the corner. How lucrative? The report notes that Christmas purchases reached a value of $45.2 billion nationwide last year. Now that’s certainly a lot of red shirts and wool stockings.
A following November 10 release shows that the ARA forecasts an even higher benchmark this year. Australians are predicted to spend a total of $46.7 billion this Christmas, which is a 4.3 per cent jump up from 2014. Russell Zimmerman, executive director of ARA, says that the organisation is confident that “retailers will see a robust Christmas trade that builds on the amount spent across the country last year”. Furthermore, Mr Zimmerman has called it a “fantastic rate of growth” considering that several banks actually made the decision to raise interest rates.
However, it seems that a cash rate cut in December could be the extra push the retail industry needs for sales figures to get over and beyond this line. With less incentive to save, more consumption, especially in this peak period, could be the key to accelerated growth in this sector of the economy.
Even a modest lowering in interest rates could make purchasing a home in the city more affordable.
What does this mean for you?
Let’s say there is a cash rate reduction on the cards. If you’re buying a house in Sydney, it’s not guaranteed that it would affect your mortgage dramatically. The Housing Industry Association touched on this in a November 3 release when it discussed the prospect of a cash rate cut. The organisation made a point that even in the event that it does happen, there’s a chance that financial institutions may not pass on the full reduction to borrowers.
That being said, even a modest lowering in interest rates could make purchasing a home in the city more affordable. QBE’s report mentions that banks are now “likely to target owner-occupiers”, and offer them a discounted interest rate compared to investors. This is a result of the Australian Prudential Regulation Authority’s countermeasures in curbing investment lending.
If you’re in the market to a buy an apartment or house to live in, it seems the financing conditions favour you – whether or not we really see a cash rate cut next month.