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I’m sure everyone was eagerly anticipating the recent Australian article regarding the top Aussie economists’ predictions for the future of RBA rates, Bond rates, Fixed rates, Tax rates, Water rates, Childhood Obesity rates, Alco-pop Consumption rates etc…
Just in case you missed it, one consistent prediction from the expert panel was that RBA rates would be around 2.5% by the end of the year. I’m constantly ranting on about the Fixed versus Variable argument, and variable rates have certainly been the dominant option in recent times but we’re not seeing the rate of decline in rates that we’ve been used to over the past 8 months.
Fixed rates have primarily remained unchanged over the past 3 months even though the RBA has dropped the Cash rate by 1.25% in that time. In fact, some have actually bumped their rates up slightly so that it’s hard to find a longer term (4 or 5yr) fixed rate at lower than 6%. The main reason is that the cost of funds isn’t that low and of course we can put some down to the banks being a little greedy… There are also fewer competitive forces driving the fixed rate lending market and there isn’t the push for the major lenders to drop rates to retain market share.
In other words, if you are thinking of fixing you loan rate (either all or a portion of it), it’s not likely to be getting substantially cheaper.
In other lending developments, the banks have been tightening their credit policies by reducing the maximum amount they lend on properties plus a requirement that the deposit (generally 5%) needs to be saved, as opposed to gifted or granted (ie First Home Owners Grant). The repeated query is “does that mean there will be fewer eligible buyers, less demand and prices will go down?”
I take the contrary view that by tightening the credit policies, the banks are actually minimising the risk of forced sales. It’s actually the forced sales that caused prices to drop as banks offload properties to recoup the outstanding debts. Given that there is still good demand for properties and plenty of eligible buyers, the market should continue to be stable.
On a final note, my favourite recent quote is from economist Satyajit Das, “I have accurately predicted 10 of the last three recessions…”
Will Chapman - Harcourts Financial Services
will.chapman@brockharcourts.com.au
0411 454 656
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