At its meeting two weeks ago, the Reserve Bank decided to leave the cash rate unchanged at an all time low 1.50 per cent, citing improved global economic conditions and a slight, but notable jump in business and consumer confidence.
A better second half of 2016 for China also impacted the Board’s decision, even though due to “a composition of growth and…rapid increase in borrowing,” medium term risks still remain a reality for the Asian juggernaut.
Interestingly, Australia’s commodities sector has made a slight, confidence inspiring resurgence recently in the wake of China once again cranking up its infrastructure and property construction spending.
“Headline inflation rates have moved higher in most countries, partly reflecting the higher commodity prices,” said RBA governor Phillip Lowe in the official monetary policy decision media release.
Although the outlook appears relatively brighter than it has for some time from an RBA perspective, things are still far from ideal. Hence, a rate rise may not happen any time soon.
For now, mixed labour market indicators and “considerable variation in employment outcomes across the country”, alongside an economy still transitioning from its resource sector heyday, are creating an outlook that “continues to be supported by the low level of interest rates.”
Most economists are in agreement when it comes to which way rates will go this year…and that’s nowhere fast.
What about our housing markets?
Lowe observes that the variances among Australia’s housing markets are extreme right now.
“In some markets, conditions have strengthened further and prices are rising briskly. In other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years,” says Lowe.
He continues listing the anomalies…slowest rental growth in a couple of decades, resurgence in borrower demand from investors and, “With leverage increasing, supervisory measures have strengthened lending standards and some lenders are taking a more cautious attitude to lending in certain segments.”
So…should we continue to expect ‘cheap credit’?
Well, as we’ve seen, cause does not equal correlation when it comes to how our finance sector operates.
Although the RBA implements a cash rate ‘benchmark’ for lending institutions, based on all the economic variables of the day, borrowers are at the mercy of the banks when it comes to what rate you pay on a retail loan product.
According to Ratecity.com.au, 33 separate lenders have independently raised their rates this year.
Most are justifying the increases with talk of rising risk in certain segments. Yes, you guessed it; investment lending to new customers tops the list of ‘reasons to up our rates’. Hence the rationing of capital, as they intensify loan assessment criteria.
Will the current cash rate move at all this year?
Some say no. Others say yes, but it will most likely be in the form of a further, record-breaking cut. Others still suggest if the US raises interest rates and we see a strengthening in our local economy come Christmas, the Reserve Bank may feel some pressure to force an increase.
What it means for investors
The big take home message for investors seeking to leverage further into the housing market at this point, is to play the game strategically, preferably with a few expert allies on your side.
Why? Well, because the field is continually shifting and serviceability obstructions are becoming larger problems to overcome…particularly as an investor.
If you want to know how you can continue to grow your portfolio in a lending environment that’s less accommodating for investor borrowers, why not connect with the Trilogy Funding team?
One of our expert brokers can help you sort through today’s financing minefield and point you toward the optimal lender and product for your investment needs, objectives and personal circumstances.
Click here to connect with us and arrange a confidential chat.