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Interest rates set to stay low

As you probably heard, this week’s monthly meeting of the board of the Reserve Bank produced another cut to official interest rates.

This move came as no surprise to most observers. Indeed, we mentioned that the reduction was likely in A POST IN THESE PAGES BACK IN MID-OCTOBER. So there was not a lot of comment despite the fact that the official cash rate has now hit a new record low of just 0.1 per cent, after a reduction of 0.15 per cent from the previous rate of 0.25 per cent

Perhaps the topic that is of more interest to many local homeowners, and those trying to buy a property in the northern suburbs, is how long interest rates are likely to remain at such low levels.

With this in mind, it was interesting to read that the Governor of the Reserve Bank, Dr Philip Lowe, said that the cash rate would not increase "until actual inflation is sustainably within the 2 to 3 per cent target range", which will require wages growth and "significant gains in employment".

If you look up the latest forecasts from the RBA, inflation is expected to be around 1 per cent in 2021 and 1.5 per cent in 2022, whilst unemployment is predicted to reach 8 per cent in 2021 before falling to 6 per cent in 2022. These numbers mean that most economists are predicting that we shouldn’t expect any increases in the official cash rate for a minimum of three years, potentially longer. That’s terrific news for anyone with a mortgage who wants some certainty over the medium term.

Clearly, this latest drop in interest rates won’t have a huge impact on most people’s home loan repayments by itself. However, it has been interesting to see lenders announcing drops to the interest rates on fixed rate loans this week, with several offering two-year packages at rates well below 2 per cent. More generally, the extra room in many people’s weekly budget won’t harm overall confidence levels either.

Of course, the knowledge that mortgage interest rates are likely to remain at record lows for the next few years may have got you thinking about making your next move a little earlier than originally planned. So if you would like an update on what your property could achieve in the current market, or you’d like some assistance in finding your next home, don’t hesitate to give us a call at Barry Plant Thomastown on 9466 3233.

Regards,

Con Constantinou

Barry Plant Thomastown