Rate forecasted to drop
Last week’s Reserve Bank announcement of a reduced cash rate came as no surprise to mortgage experts, who call for a further slash in months to come.
The RBA’s decision to shave off 25 basis points from the 4.75 cash rate to 4.50 on Melbourne Cup day was the first cut in over two and a half years. For mortgage holders with a $300,000 loan, this translates to a $51 discount in monthly payments.
Aussie mortgage broker Jon Somers assists many first-home buyers in the eastern suburbs. “The current rate doesn’t make enough of a difference to people’s weekly balances. I think a 0.5 per cent drop is needed,” he said.
“The average loan we’ve written over the year is $570,000, so savings per month is about $100.”
Chief operating officer at Loan Market Dean Rushton said he expects a further 25-point reduction in February. “In the next quarter, there’s definitely a case for another rate cut … consumers have retreated to a conservative position.”
The company surveyed about 300 people online before the announcement. “We surveyed to see if there was a rate cut in November, how that would influence consumer spending. Many said they’d put it back into their mortgage,” he said.
“There’s been a lot of commentary in the media about talking up rates then talking them down. The RBA has been quite variable and buried in their views from month to month. That volatility contributes to the erosion of consumer confidence,” he said. “The big thing from the rate cut is that we’ve now seen some definitive action, so we now know where they’re going.”
Mortgage Choice spokesperson Kristy Sheppard advised buyers to look beyond the big four. “It’s important to remember there are a wide range of smaller lenders other than the major banks such as regional banks, non-banks, foreign banks, building societies and credit unions, there are over 100 lenders in Australia.”
She said many of today’s buyers are choosing three-year fixed rates over variable rates. “Consumers are increasing their appetites for fixed rates because the rates are dropping … over the last six months fixed rates have fallen below variable interest rates.” Those with a fixed rate home loan for $800,000 could pay $318 less than those on a variable rate, Ms Sheppard said. Aussie’s current fixed rate is 6.29 per cent and its variable rate is 6.7 per cent.
Mr Rushton said Sydney’s housing market remains strong. “In talking to analysts, Sydney is seen as the most promising market in the next two years, we can see the house prices are most resilient in Sydney … there’s definitely a case for values to increase steadily.”
By Deborah Erwin
