Stagnant cash rate expected to go down further

As falling demands for home loans, particularly among property investors, have been established as an irrefutable reason for RBA retaining the cash rate at 1.50%, speculations mount that there will be more rate cuts.  

In a statement, Finsure managing director John Koleda said the RBA is expected to keep the cash rate at its current all-time low for a few more months despite pressures to lower it for the first time since August 2016.

“There are political distractions for the RBA with the federal budget handed down on April 2, the same day the central bank next deliberates on rates,” Kolenda said.

“Then there is the federal election, which is due by mid-May. Like the Budget, the election outcome and a potential change of Government will have a significant economic impact which the RBA will need to factor in.”

A rate cut seems inevitable for Kolenda because of the many negative factors afflicting Australia’s economic activity such as the US-China trade war, unemployment and the falling property market. Economists forecast at least two cash rate cuts over the coming 12 months.

“The lending landscape has also been highly restrictive, complicated and confusing since the Hayne Royal Commission, with tighter lending regimes and forensic examination of borrower expenses significantly reducing borrowing power for consumers,” he said.  

“We have seen a dramatic reduction in borrowing capacity for consumers with many being disheartened by the scrutiny of the major banks in analysing their expenses and activities. The average consumer qualifies to borrow 20% less now than six months ago and the criteria varies drastically across lenders.”

Time to review|
Meanwhile, as the cash rate is put on hold, 22 lenders have reduced their rates on over 150 fixed home loans this year in a bid to win market share. RBA data reveals the three-year fixed rates are .58% below the discounted variable rates for owner-occupier borrowers. 

“Home lending tumbled last year and as a result the banks are throwing everything at fixed rates to keep customers coming through the door,” RateCity CEO Paul Marshall explained in another statement. “The lowest 3-year fixed rate is 3.64%, while 5-year rates start as low as 3.74% – that’s fixed until 2024.”

Marshall added that with “some great rates being offered at the pointy end of the competition for both fixed and variables,” it’s a “great time” to review one’s home loan.  

Upside in the fall
In a separate statement, Mortgage Choice executive officer Susan Mitchell said whether the cash rate changes or not, borrowers should establish a relationship with a home loan expert who can navigate the complicated lending environment and “is prepared to fight for them to secure a competitive deal on their mortgage.”

“If you are a borrower looking to switch from an interest-only loan to principal and interest, or coming to the end of a fixed-rate period, now is the right time to speak to your mortgage broker,” Mitchell said.

“The upside to falling property prices is that there are many deals to be had for those looking to buy a home.”

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