Laura Akhurst - 9 Jul, 2017

Rates Likely to Remain on Hold Until 2018 with Interest Only Loans on the RBA’s Radar

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eChoice RBA Commentary for  July 2017.

The official cash rate stays at 1.5% as:

• Wage growth remains uniform;

• Household debt stays consistent;

• Major Australian banks to pay a levy; and

• The housing market adjusts.

The RBA have left the official cash rate on hold for this month. With the economy steadily improving and the housing market stablising, the future looks bright. Another favourable economic indicator includes rises in the GDP. Seeking to encourage further financial stability, the RBA are encouraging smarter lending practices. Plus, they seek to motivate borrowers to create buffers and reduce debt risk. Consequently, economists suggest that rates are likely to stay on hold at 1.5% until 2018.

The Australian Home Loan Market

At present there is over $400 billion worth of interest-only housing loans held by Australians borrowers. As a result, the RBA are urging banks and other lenders to consider household debt when approving loans. Plus, the RBA also suggest that homeowners consider creating a mortgage repayment buffer. This buffer then reduces any financial risk considerably. Also, it decreases any future financial stress.

Several Australian banks and lenders are now encouraging borrowers to move to variable rates. Accordingly, this encouragment comes after the Australian Prudential Authority (APRA) suggested interest-only loan numbers needed reduction. Subsequently, major banks and lenders made variable rate home loans more attractive.

Another factor that is set to influence major Australian lenders is the introduction of the government’s bank levy. As a result, this levy will raise $6.2 billion over the next four years. Therefore, borrowers need to have a buffer in place, so they can rest assured if rates rise.

The Australian Housing Market

CoreLogic RPData suggests that the market is continuing to adjust after its boom. Overinflated markets are now returning to normal levels. Although, pricing changes are marginal in most capitals.

Year-on-Year dwelling values are still high, as are dwelling medians. Furthermore, growth across the combined capitals also occurred over the last three months. Let’s look at the data.

Capital City Home Values at 31st May 2017
All Dwellings
% Change Month
% Change Quarter
% Change Year
Total Gross Returns
Median Dwelling Values
Sydney 1.0 0.0 11.1 14.5 $872,300
Melbourne -1.7 0.7 11.5 14.8 $665,000
Brisbane 0.3 1.2 2.3 6.7 $490,000
Adelaide 0.8 2.0 2.9 7.1 $432,000
Perth -0.4 -0.4 -3.8 -0.2 $481,500
Darwin -3.5 -0.1 -6.4 -1.8 $460,000
Canberra -0.1 -1.5 5.7 10.1 $600,000
Hobart -4.8 -1.0 5.8 11.4 $350,000

Source: CoreLogic RPData

With significant gains over previous months, Sydney and Melbourne’s markets continue to readjust. Amongst the combined capitals a modest rise of 0.4% in home values occurred. Smaller capital such as Adelaide and Brisbane are also showing steady growth.

Economists indicate that home market values need to be judged seasonally. In addition, as investor buying eases housing demand will lessen. Of course, this is favourable for first home buyers looking to enter the market. Amid less competition, home values will further ease. Therefore, more first home buyers can take advantage of lower entrance prices.

First Home Buyers

Interestingly the age of first home buyers is changing. According to government data, the typical first home buyer is now much older. During 2011 to 2015, the number of first home buyers over 40-years rose by 50%. Younger first home buyers decreased over the same time.

Introducing measures such as reducing stamp duty costs and introducing grants for first home buyers further helps. For instance, Victoria abolished stamp duty for first home buyers purchasing a home worth up to $600,000. Such an exemption is available on new or established homes, with buyers needing a 5% deposit.

Do you want to find a competitive home loan? If you said YES, then it’s time to discuss your options with an eChoice mortgage Broker. We could help you save more!

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