With mainstream credit getting tougher every day, brokers are finding it difficult to help their "out of the box" clients
The industry looks at how the budget has helped – or not helped – struggling homebuyers
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An RBA rate increase is “off the table altogether”, according to Canstar’s finance expert Steve Mickenbecker. The reserve bank announced yesterday afternoon (April 2) it would be keeping the April cash rate on hold, despite growing feeling that it could be about to cut rates.
Weak December quarter GDP numbers followed by lower than expected jobs growth means, despite what RBA Governor Philip Lowe has said in the past, the next rate move must be downwards, says Mickenbecker.
“A lower cash rate looks inevitable” he says. “Though for now, the RBA could be keeping its powder dry to leave room to move if we start to see even more disturbing GDP and jobs numbers, and property prices in coming quarterly results.”
Echoing this sentiment, CoreLogic’s Tim Lawless says there is growing likelihood the cash rate will move lower later this year.
“While labour markets remain strong, low unemployment and above average jobs growth is generally confined to New South Wales and Victoria,” Lawless explains. “Concerns around slowing consumption as the wealth effect reverses, causing households to pull back on spending and revert to saving were likely a central theme of the RBA’s board meeting deliberations.”
Home loan rates
So, what does this mean for brokers and their borrowers? Because while the RBA cash rate has remained on hold since August 2016, the banks have not mirrored the stability.
But things have taken a turn – while last year we saw many lenders increasing their interest rates, they are now factoring in an RBA cut.
Canstar has recorded 274 fixed rate cuts this calendar year. Mickenbecker adds, “The bigger rate cuts are in the four and five year terms, with funding costs for Australian lenders following the downward trend for US longer term interest rates.”
And what about those wholesale funding costs that were the reason behind the banks hiking rates?
“The increased wholesale funding costs that drove up home loan rates for existing borrowers up from September last year have since been reversed, with the bank bill swap rate falling again,” Mickenbecker explains. “Lenders have not returned these rate increases but have invested them in lower rates for new borrowers.”
Does this mean borrowers can expect to see their loan rates falling? Perhaps not.
Mickenbecker continues, “When the RBA does move, the question will be how much will the banks pass on and will cuts be enough to make a difference? The most likely answers are not all of it and there will be a long lag before any rate cuts work through the economy.”
Canstar’s interest rate insights:
- There's been 174 rate moves in the month of March.
- More than half (118) of these have been cuts to fixed rates.
- Of the lenders who moved variable rates in March, according to Canstar's database 86% made decreases.
- If you had $400,000 home loan over 25 years with an average variable rate of 4.43% and switched to the average of the lowest variable rates in the market of 3.71%, you could save cut your monthly repayment by around $159 and save almost $48,000 in interest over the life of the loan.
The ongoing falls in dwelling values have the potential to weigh down consumer attitudes towards spending and case a sharper than anticipated fall in residential construction activity, Lawless says.
“The latest data from CoreLogic shows the pace of decline has eased off somewhat over the past couple of months, but the geographic scope of weak housing market conditions has broadened,” he explains further. “With values trending lower across most regions of Australia, household wealth is being eroded and the risks of a downturn in consumer spending are heightened.
“Also, with economic growth losing momentum, as well as inflation and wages growth remaining below expectations, there are plenty of reasons why the RBA might have considered a cut to the cash rate.”
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