How does the cash rate affect my investment?
Interest rates can sometimes seem like a soap opera – you just don’t know what is going to happen next. At its latest board meeting the Reserve Bank of Australia stuck to its guns and left the official cash rate unchanged at 2.25 per cent for another month.This can be a bit unsettling for borrowers who are waiting to fix their home loans, but it should be of some comfort that a rate cut is certainly on the horizon, it is just a matter of when.
Ever the wily decision-maker, Governor Glenn Stevens extinguished any speculation that this latest meeting would result in a further cut, noting that its February trim is sufficient for the time being. However, he hinted that brokers and home owners should not become too comfortable with the current arrangement.
“Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target,” he said in a March 3 statement.
The RBA has pursued steady cuts since 2011. The cash rate sat unchanged at 2.5 per cent for the longest period of time between 2013 and February this year, when it dropped 25 basis points to its current level. It has been a fine balance between spurring economic growth – amidst falling commodity prices and a declining Australian dollar – and ensuring the ferocious demand for property does not cause the housing market to overheat.
Head of Research at CoreLogic RP Data, Tim Lawless, said the most recent cut is already having an impact on the property market, particularly in Melbourne and Sydney.
“We are already seeing the effect of lower mortgage rates, with auction clearance rates surging to the highest levels we have seen since 2009 and valuation activity across CoreLogic RP Data valuation platforms reaching new record highs based on daily averages over the second half of February,” he said in a March 2 release.
Surging demand is likely to continue to prop up values, but rent prices are struggling to keep pace with growing house prices. This is something that could influence how you choose an investment home loan. While there are plentiful capital growth opportunities, rental yields will likely continue to track lower.
