Finance advice
Philippe Brach

Interest rate predictions for 2016

By Philippe Brach

Property owners are encouraged to consider interest rate conditions for the New Year to sufficiently manage their mortgages.

Blogger: Phillippe Brach, CEO, Multifocus Properties & Finance

Where are interest rates headed in 2016?

It’s the million-dollar question, isn’t it?

Perhaps it’s not quite worth that much, but the question of where interest rates are headed in 2016 has certainly crossed every property owner’s mind.

This is perhaps driven by the confusion we experienced in 2015, when we went from what most considered a stable interest rate environment to a volatile mortgage season of shifting rates, terms and conditions.

Investors are now paying up to half a per cent more than they were six months ago (even though the official cash rate hasn’t moved), and investment loans are becoming harder to secure.

Overall, it’s an uncertain time and at Multifocus Properties & Finance we’ve certainly noticed an increase in enquiries from clients who are wondering what they should do next. They want to know:

  • Are interest rates going to increase in the next year?
  • Should I fix my rates now to avoid getting stung by further increases?
  • Or is my mortgage likely to fall again in 2016?

While I have no definitive answers for you, I do have my thoughts on the subject.

Managing your mortgage in 2016: will rates rise or fall?

It obviously helps to be able to budget and make investment and financial plans if you know how much your mortgage is going to cost you over the year ahead.

The good news?

I believe the Reserve Bank will reduce interest rates in 2016.

Reserve Bank Governor Glenn Stevens virtually said as much at the RBA’s December board meeting, when he commented:

“The board again judged that the prospects for an improvement in economic conditions had firmed a little over recent months and that leaving the cash rate unchanged was appropriate. Members also observed that the outlook for inflation may afford scope for further easing of policy, should that be appropriate.”

Whether it’s one rate cut or two, we’re likely to see the cash rate come down.

The bad news?

Just because the Reserve Bank decreases the cash rate doesn’t mean the banks will pass it on to consumers. Their behaviour in recent months has proven that they’re ready and willing to operate to the beat of their own drum, and a 25-basis point decrease delivered by Mr Glenn and co. could become an opportunity for them to reinforce their balance sheets, rather than reward customers.

Should you fix or stay variable?

In saying this, if you currently hold a mortgage it’s important to retain some perspective.

Most people who have a home loan right now, or who are applying for one, are paying a mortgage interest rate that begins with four. This is half what we were paying during the GFC, and far lower than we are accustomed to paying for our mortgages.

Consider the fact that over the past 50 years or so, mortgage interest rates have averaged around seven per cent. It’s generally accepted in the industry that seven per cent is the ‘norm’, so to have an extended period where mortgages are available in the 4.5 to five per cent range is not to be taken lightly.

Some in the industry believe interest rates will remain around their current historical lows for several years, particularly as the Australian economy continues to re-balance away from mining. Adding to this, most banks have a five-year fixed rate between 4.5 per cent and five per cent, so it seems that banks bet that we are in for a long stretch at low levels.

This could mean fixing your interest rates to lock in rate certainty and allow you to manage your budget effectively. It could also mean saving a little harder to increase your cash reserves in case of another lender-led interest rate hike; or reviewing your property rents to ensure your investment properties are returning as much profit as possible.

Read more: 

10 markets to take-off in 2016

8 areas with 30%-plus growth 

How to start investing without a plan 

'Worrying signs' emerging for housing market 

Capital city price gains revealed 

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About the Blogger

Philippe Brach

Philippe Brach

Multifocus Properties & Finance was established in 2005 with the aim of mentoring investors to create wealth and invest in their future by building an investment property portfolio.

The company is led by Philippe Brach who has over 25 years experience in the international corporate world specializing in finance, accounting and investment. He is a fully qualified and extremely experienced real estate agent, concentrating his attention solely on investment opportunities around Australia. In addition he is a highly regarded mortgage broker, being accredited with around 35 different lenders.

Email:
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podcast

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  ["title"]=>
  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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  • The pitfalls that he has seen people get into<\/li>\r\n
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    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:\u00a0<\/p>\r\n

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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
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A property investment plan years in the making
object(stdClass)#1203 (52) {
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  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
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  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

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Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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