February 2015 Interest Rate Cut

Posted on 18 April 2016

While the Australian dollar has slid to a 9 year low this past month, the Reserve Bank of Australia has also made the decision to drop interest rates to a historic low of 2.25% off the back of a slow spending market.  In addition to the drop in interest rates, local petrol prices are also at prices not seen for many years with many in the capitol cities and regional areas welcoming the change in their pockets.

Treasurer Joe Hockey said about the drop, “This is good news for Australian families and it’s good news for Australian business. The government is working hard to take the pressure off interest rates by keeping inflation low.” In addition to the drop in interest rates, local petrol prices are also at prices not seen for many years with many in the capitol cities and regional areas welcoming the change in their pockets.

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The big question is, will the drop in interest rates have a positive impact on the Australian property market? The proof will be in the pudding. As long as the banks adopt the low interest rates, more home buyers will be driven into the marketplace which  will inevitably cause a surge in buyer activity and competition. This is excellent for homeowners looking to cash up and upgrade or downgrade. In terms of mortgages and lending, the reduced interest rate is likely to take a typical standard variable mortgage rate down to 5.7 per cent and discounted variable rates to 4.85 per cent — the lowest cost of mortgage debt since July 1968.

However, the stimulus may not be as influential on housing market conditions as in the past, according to Tim Lawless of CoreLogic RP Data.
“Lower consumer confidence, stricter serviceability requirements for borrowers, tighter lending conditions for investors, affordability challenges and low rental yields are all factors that may contribute to the moderation in housing market conditions over 2015.” Mr Lawless said. One of the large markets affected by the drop is retirees or those relying on high interest savings to survive. In this instance, getting back into the property market or securing a home now while the interest rates are low may be a good investment back into their personal wealth.

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