Property investors often keep an eye on the official cash rate in an attempt to understand how much their mortgage repayments may change - but after months of stability, what's next?
Blogger: Jeremy Fisher, director and founder, 1st Street Home Loans
Over the last 25 years, a key indicator of interest rates, the Reserve Bank of Australia’s cash rate, has fluctuated between 2.5% and 17.5% per annum. Since August 2013, the rate has remained unchanged at its record low of 2.5% and although it should remain steady, its next move is likely to be up.
The Reserve Bank of Australia alters interest rates with the aim of achieving their target levels of sustainable growth in both demand and inflation. Since the start of 2014 growth has become firmer with moderate growth in consumer demand as well as a strong increase in housing construction. Property prices have increased significantly over the past year, rising an average of 10.9% across Australian capital cities from March 13 to March 14 according to ABS figures. However, there are some signs of a moderation in the pace of the recent growth.
The Governor of the Reserve Bank, Glenn Stevens, announced that the current monetary policy should support demand and help strengthen growth whilst keeping inflation consistent at 2-3% over the next two years. The board recently announced, “Given this outlook for the economy and the significant degree of monetary stimulus already in place to support economic activity, the board judged that the current accommodative stance of policy was likely to be appropriate for some time yet”.
Consumers have the option to fix their interest rate for a set period of time such as 1, 3 or 5 years. By fixing the interest rate, any changes made by the Reserve Bank will not affect the regular repayment amount. With rates likely to rise, consumers who fix rates now would prevent their rate from rising during the fixed period but it is also important to consider that if rates were to drop, consumers would still pay their fixed rate which would be relatively higher. Now is the perfect time to discuss your options with your mortgage broker or lender.
About Jeremy Fisher
Director and Founder of 1st Street Home Loans, Jeremy Fisher, is one of the most awarded mortgage brokers in the industry and winner of the Australian Broker Association’s prestigious ‘Australian Broker of the Year’.
Since 2001, Jeremy has settled in excess of $500 million worth of property loans and delighted clients with exceptional results and highly personalised service.