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Good news for home owners and people looking to enter the property market at the moment

5. June 2015 11:15  /  swanvalleyrealtyblog Comments (0)


The following article is a blog by  Kate Jones that appeared on the realestate.com.au website on 29 MAY 2015

 

Cabramatta

Rates set to remain steady in coming months

Interest rates are tipped to stay on hold for June, and possibly for the rest of the year, as the economy absorbs two earlier rate cuts.

Rates are currently at 2% after they were cut by 0.25% in February and again in May.

Market Economics managing director Stephen Koukoulas says the Reserve Bank will sit tight in June.

“There’ll be no change in June and for quite a few months,” he says.

“We’re at 2% and the economy is ok – it’s not strong, but certainly not any weaker than it was.”

Minutes of the RBA’s Monetary Policy meeting in May echoed this assessment of the economy, stating “forces underpinning developments in the domestic economy were much as they had been for some time”.

The minutes revealed the RBA had considered decreasing rates in either May or June, but opted for May to take advantage of revised growth forecasts by Reserve Bank staff.

RBA data suggests economic growth is expected to continue at a lacklustre pace for the next 12 months before picking up gradually in 2016/17.

Increased consumer confidence, a downward shift in unemployment rates and a cooling property market in Sydney are key to reviving our lagging economy, financial experts say.

Whilst he expects rates to remain on hold this year, Collins House independent financial advisor Dominic Alafaci says the RBA may consider raising rates if Sydney’s overheated real estate prices don’t get under control soon.

“Whilst we expect the Reserve Bank to maintain its easing bias for the medium term, there will be some upward pressure on the overall cost of borrowing especially for investment purposes as regulators attempt to contain a potential property bubble,” he says.

On the flipside, interest rates could be cut even further if the economy needs a boost to speed up growth.

“Rates will remain stable for the near term unless the economy falls away in the third quarter whereby the Reserve Bank may cut rates sooner rather than later to help stimulate the economy and improve employment growth,” he says.

With interest rates now at new record lows, Alafaci says there’s a good case for homeowners to stick to a variable rate or split to lock in fixed rates for part of their loan.

“As a rate rise is not on the cards this calendar year, keeping the bulk of your home loan variable would be worth considering,” he says.

“Although those who prefer to eliminate uncertainty from a cash flow perspective or who are fearful of potential increased borrowing costs for investment purposes, may wish to lock in a fixed rate loan with part of their facility.”