In a surprise move to many, the Reserve Bank of Australia cut interest rates on February 3 for the first time in 18 months, and all major banks have passed on the cuts to mortgage holders.
The RBA board members came back from their summer break feeling… well, perhaps not so rested and optimistic as they were last year, with heightened concerns about lower overall economic growth in 2015 and perhaps feeling some pressure as a result of actions taken by many other central banks around the globe.
The central bank expects economic growth to be subdued, especially in non-mining sectors (which need to pick up the slack from a slowing mining sector) and that’s combining with below average consumption growth to create a more pessimistic view.
Oil flow-through
Noticeably, the bank’s assumptions around the price of oil were also revised drastically, down by around 30% to US$59 per barrel being the current forecasted price, which should flow through to create positive benefits for the economy, perhaps in the second half of the year and next year.
However, the bank also commented they are expecting a slightly worsened unemployment rate in the months to come, as realisation is starting to spread that Australia’s record-breaking consistently high growth rates are not going to last forever.
Good inflation news for homebuyers
Inflation has been quite subdued and this has been helped significantly by the declining oil price. With inflation well under control, the bank will always feel empowered to cut rates, if it believes that is what’s required to stimulate demand and help maintain current growth. This is good news at least for homebuyers and mortgage-holders in Australia.
The relative interest rate
I wrote previously about the bank’s attempts to influence the currency, and how interest rates are occasionally managed to help keep the Australian dollar from appreciating and making exports less competitive.
Over the last 2 months 16 countries have lowered interest rates, making the Australian rate relatively higher and thus attracting speculative investment in the Aussie dollar relative to other currencies. This action is putting upward pressure on the dollar, something the RBA is trying to avoid. In fact, the bank said: “a lower exchange rate is likely to be needed to achieve balanced growth in the economy”.
Time to buy or refinance?
After this rate change Australian mortgage rates are now even lower, and much lower than historical averages. Each of the four major banks have adjusted their rates downwards in response to the RBA change.
In addition to lower rates, the Sterling and the Euro have risen higher against the Aussie dollar over the last 12 months, so cash transfers and property deposit payments into Australia will convert to more Aussie dollars to spend. We have also seen that banks are increasingly competitive, prepared to offer greater interest discounts than usual, in many cases.
This all adds up to an interesting time to consider your property and mortgage options in Australia.
Daniel Shillito is a Mortgage Broker, Financial Adviser and specialist in Expat services at Aussie Finance and Property Group. Daniel can be contacted at daniel@aussiefpgroup.com Ph +44 (0)20 3239 0479 or visit www.aussiefpgroup.com
See more Expat Finance with Daniel Shillito, including:
Aussie Mortgage Application Guide
New Australian credit report laws mean lenders know much more about you
Mortgage offset accounts, are they worth it?
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