Tag Archives: RBA

Cash rate cut to 1.75% as at 4 May 2016

Record-Low

Another record low cash rate! The RBA cash rate statistics page doesn’t even record the last time it was as low as 1.75%, only going as far back as January 1990. Debt has not been this cheap in Australia for decades.

The main reason the RBA gave for this historical low rate is due to “…inflationary pressures (that) are lower than expected.” This means the Australian economy is not growing as much as it is expected or at recent levels, and in order to stimulate the economy the RBA lowered the cash rate to promote households and businesses to take on more debt for investment to boost the economy.

The RBA choosing to cut the cash rate is a big decision and not taken lightly. The RBA would only cut the cash rate where they see the economy heading south for the foreseeable future and need strong measures to curb this downfall. So while debt may be cheaper, employment levels are declining and asset prices in general are falling.

Whether to buy property now is a trade off of factors:

  • debt is cheaper so you could borrow more,
  • however unemployment is increasing so job certainty is waning,
  • property prices are falling but where is the bottom of the market?, and
  • how long do you plan to hold the property to weather the slump back to higher prices and return on investment?

Speculation of a further 0.25% rate cut on 1 June would suggest a wait-and-see approach to buying property. And I hope you have a variable rate mortgage!

We are packed!

cardboard box london bus

…well sort of! The packers came today to pack the items we are putting in storage for our move to London. Yes we’re going back. Albeit much older and with two kids.

The last year has been a little hectic, to say the least. I’ve thought of posting nearly every day but hadn’t the time or the motivation to write during what spare time I had. After moving in after renovations and needing a break from that *insert expletive here* experience, we then got pregnant, had our second child and are relocating to London next week for work.

To catch up, it seems we have reached the peak of the property market (I’d like to suggest my last post predicted this), and the cash rate is still 2%. I think the RBA is enjoying the pressure the banks are putting on borrowers with recent rate rises due to higher capital charges (which I can explain, if anyone’s interested?). Markets are calling for the RBA to cut rates to combat this but in actual fact it’s pressuring the housing price boom down and doing the RBA and the Government’s job for them.

So step one in our packing is complete… next stage is packing what we will take on the plane (I have investigated EXACTLY how many kgs we can take!), what will be air freighted (80kg, which takes 8-9 days), and what will be shipped (which takes 8-9 weeks). And with kids this is no mean feat. Because kids need a LOT of stuff. Their 59 million favourite soft toys (“I want Ferdinand, and Elephante, and SheepDog, and and and”), 376,000 favourite books (“I want Chutney, and Marshmallow Mouse, and Cars Cars Cars and and and”) and 39 vehicles of all description (“I want Fuoco Motore x 3, Orange Car, Porsche, Digger Digger Digger!”). And that’s just the toddler. And they can’t wait for these favourite, precious, must-have-immediately things for 8-9 days for the air freight arrive. So I have been weaning our toddler off lots of toys onto just a few key ones. Thankfully our baby doesn’t need many toys but she needs loads of other things; blankets, nappies (!!), wraps etc etc etc.

So my plan is to effectively pack our bags a few days before we go and weigh them to within an inch of their life. Then pack the airfreight and do the same. Then everything has to go on the slow boat and we’ll just pretend we’re camping. First world problems!!

Thankfully we are being properly relocated with work, so we have packers, shippers, temporary serviced accommodation when we arrive, relocation services helping with finding permanent accommodation, rental furniture while ours arrives, visas etc etc etc. And then there is the list of things we have to do in Oz before we leave…

Rent our house – this friends is one of the reasons you shouldn’t pay off principal on your mortgage (see previous post here). Sell our car. Organise the new baby’s birth certificate and passport, adding her to Medicare, private health insurance and applying to schools, because god knows I’ll forget to do that when we move and by the time we get back in a few years she won’t be able to get in anywhere for high school and the poor thing will be desperately deprived for life (note the sarcastic parental guilt). Cancel utilities, phones, remove ourselves from the electoral roll… the list goes on!

Plus did I mention we just had a baby?!

I still have loads to write about the Sydney property market, renovating and everything property, but will also be adding some insights on London property too. Next post is about the London rental market.

So we leave next Thursday. Wish us luck in our final week!!

 

Cash rate cut by 0.25% to 2.25%

Cash rate graph

Yesterday we saw the first meeting of the year for the RBA and a cash rate cut of 0.25% to 2.25%, the lowest in Governer Glenn Stevens (and many of our) lifetime.

Great news for people holding debt or wanting debt as money will now be cheaper to borrow.

Financial services providers will usually cut their variable mortgage rates as soon as today, with fixed mortgage rates dropping over the next month. See a previous post on how the cash rate drives mortgage rates.

The reason for this rate cut is to stimulate the Australian economy. A number of domestic indicators as well as the continuing state of the world economy has prompted the RBA to support the economy via a boost in Monetary Policy.

Which means things aren’t super great at the moment, but as long as you have your finances in order you can take advantage of this opportunity for cheaper debt.

However the typical trade off for a lower cash rate often is not good for property buyers. The ability to borrow money cheaper, and/or borrow more leads to increased buying demand and therefore competition in the market. And this is from both owner occupiers and even more so, investors.

The market is forecasting another 0.25% rate cut in the first half of this year (at this stage, speculation can change daily). Stay tuned for the next RBA meeting on the 3 March…