Spoiler alert…after declaring last month that interest rates will remain on hold for the brief remainder of 2017, speculation now turns to what the coming year has in store for mortgage holders.
Many economic boffins predicted a rise in the official cash rate at some stage throughout 2018, however now there’s less certainty, with some suggesting we’ll be waiting until the latter half of 2019 for any movement from the RBA.
This prediction comes off the back of a continuing cool down in house prices, with falling clearance rates indicating that the real value of residential property could be lower than the official figures we’ll see emerging at the end of the year.
Of course house prices and interest rates are inextricably linked. Should the markets fall precipitously, the RBA will no doubt sit on its hands a little longer, lest rising rates scare too many out of the game at once, thereby causing a greater fall in values than would be palatable.
Around 70 per cent of analysts are now forecasting a rate rise no sooner than the middle of next year.
However, a growing number of experts have pushed this prediction out to 2019, after last month’s comments from Reserve Bank governor Phillip Lowe, reaffirming that current economic conditions were not ripe for rate rises. Stubbornly low wage growth and inflation are two key reasons Lowe is reluctant to see rates rise anytime soon.
On the other hand though, the central bank is understandably reticent to drop rates down any further, given that when they did so last time, thinking much of the wind had left the sails of the housing boom, property transactions took off again in a big way.
But what if property prices fall more substantially over coming months? What if wage growth and inflation continues to flatline, or worse, decline rather than actually grow?
Will the RBA be backed into a corner, forced into yet another rate reduction to prevent a jarring crash in the sector? And if so, will APRA step into the fray once more with all regulatory guns blazing?
Lenders have already tightened up their policies and practices around handing out housing finance, particularly to investors, on the back of historically heavy-handed intervention from the regulator.
In fact the Commonwealth Bank recently informed mortgage brokers that it’s about to launch a major overhaul of its lending policies in a bid to “ensure the long-term sustainability of the property market.”
This further crackdown will include further fine-tuning of existing lending policies, such as increasing required deposit amounts, and the introduction of new measures to make acquiring a loan in higher-risk suburbs far more difficult.
This announcement coincided with a startling new report from UBS that suggests $500 billion worth of loans in the Australian banking system are based on factually incorrect borrower information.
In light of all this upheaval in the banking and property sectors, it will be interesting to see how 2018 plays out for interest rates, and whether the Reserve Bank will be forced to once again sit impotently by and watch it all unfold for a further 12 months.