On the up: What will higher interest rates mean for real estate investors in New Zealand and further afield?
The Land of the Long White Cloud is shaping up to raise rates and the country may well be a bellwether for the Australia...
The Reserve Bank has released the outcome of its monthly board meeting for June amid many experts expecting a cut.
The RBA today cut the official cash rate at a new record low of 1.25 per cent.
Australia’s top economists and property experts were mostly expecting a cut, according to comparison site Finder, with only 5 per cent of their panel predicting rates to hold.
Of Finder's panel, 95 per cent correctly predicted this month to be a cut, while no experts expected a rise.
Graham Cooke, insights manager at Finder, said that this rate cut puts the Australian economy into “uncharted territory”
“If two more rate cuts are enforced this year, we could potentially see a rate of 0.75 per cent which is unheard of in Australia,” Mr Cooke said.
“It’s almost hard to fathom what it was like for borrowers 11 years ago with a 7 per cent cash rate, let alone the 17 per cent cash rate back in 1990,” he said
One of the experts who correctly predicted a rate cut was My Housing Market’s Dr Andrew Wilson, who “clearly” saw the RBA intention to cut rates due to unemployment rising and the recent release of GDP data for the March quarter.
“[This] will encourage the Bank to cut to be seen to be acting to stimulate the economy ahead of what is likely to be yet another underwhelming result for the economy,” Dr Wilson said.
Shane Oliver, chief economist at AMP agreed with Dr Wilson’s sentiments and also correctly predicted a cut on a similar basis.
“Growth has slowed, inflation has slowed well below target, unemployment looks like it is now starting to rise when it needs to be falling to get inflation back up and the RBA has recognised all of this (and moved to an easing bias),” Mr Oliver said.
CoreLogic’s head of research Tim Lawless said the decision to cut was widely expected, and attention should now turn towards mortgage rates.
“Mortgage rates for owner occupiers are already around the lowest level since the 1960’s and lenders are generally expected to pass on most, if not all of the cash rate cut to mortgage interest rates,” Mr Lawless said.
Looking forward, Mr Lawless said that the combination of as lowered mortgage rates, APRA’s recent loan changes (if passed) and the boost in confidence all point to an improving housing market.
Of the panel, only Christine Williams from Smarter Property Investing and Mark Brimble fromUniversity incorrectly predicted a hold.
Mr Brimble said that while conditions are pointing towards a cut soon, there was a possibility that the RBA will wait for financial year 2019-20 before making a move.
“The RBA may choose to wait for the new financial year for a range of reasons including the finalisation of the budget bills (which get through and which don't) and how geo-political issues play out on the global stage and markets,” Mr Brimble said.
Meanwhile, Ms Williams believed that current employment is steady and therefore there is no need to cut rates just yet.
What does this mean for securing a mortgage?
Despite Mr Lawless’s belief of the major banks passing on the interest rate cut, he does not see borrowing becoming any easier any time soon with finance still remaining tight, even with future rate cuts down the line.
However, house values would be expected to turn around sooner than expected.
“Borrowers are facing much closer scrutiny on their income and expenses as lenders become less reliant on HEM (Household Expenditure Measure) benchmarks, and comprehensive credit reporting is providing lenders with greater transparency around borrower debt levels and credit standing,” he said.
“Overall, the latest rate cuts together with lower serviceability assessments for borrowers and greater confidence following the federal election should help to support an earlier than expected trough in housing values, but we aren’t expecting a rapid reversal in house price declines due to ongoing tight credit policies and, more broadly, economic uncertainty as global trade tensions escalate.”
Meanwhile, Mr Cooke said this and future rate cuts could allow for more first home buyers to enter the market and generally more affordable repayments for existing borrowers, but the whole rate cut may not be passed on.
“We’ll all be watching the banks, particularly the big four, to see how – and how quickly – they respond to today’s news,” Mr Cooke said.
“Keep an eye on your lender's website and digital channels to see how they are responding to the rate cut and how this will affect your mortgage.
“If you’re not satisfied, don’t settle – this environment makes it a great time to go home loan shopping.”