The Reserve Bank left interest rates on hold when they met at the beginning of the month: not really any surprises there.
With property markets in Melbourne and Sydney still surging, there was very little chance the RBA was going to cut interest rates and give people even more incentive to buy.
However, the economy isn’t quite in good enough shape to justify a rate rise, either.
I received an interesting comment from Jason on my Facebook page this week about RBA rate decisions:
“Hey Helen. If the RBA reduced the cash rate I think it wouldn’t matter much to us as investors right? Seeing as the banks have put their interest rates up anyway.”
Yes, it’s true that interest rates for investors have lifted over recent weeks with the ‘Big 4’ banks, in response to APRA’s move to restrict all investing lender to 10% growth per annum.
These banks have increased rates by around 0.25-0.30%. An RBA rate decrease of 0.25% would have effectively cancelled this out.
That said, just because the RBA announces a rate cute, that doesn’t mean banks are going to pass on the full decrease – or any of the decrease at all. If the Reserve Bank does move to decrease the cash rate, lenders might use it as an opportunity to claw back some profits and widen the gap between investor and homeowner loans.
The cost of funds for banks have gone up due to their capital holding costs and we may see further increases in the future.
However, once this storm has passed and the market has steadied, I expect we will see more normality returning to the investor financing market.
We should also keep everything in context… It was only half a dozen years ago that we were dealing with mortgage rates that had a 7 or 8 in front of them. Even the more expensive investor mortgages are currently still below the 5% mark, so things could be far worse.
Til next time, happy investing!