Policy makers make safe bet on cash rate: Mortgage Choice

GUEST OBSERVATION

The Reserve Bank of Australia (RBA) has once again made the decision to keep the nation’s official cash rate on hold at 1.50%, reaffirming its long-running stance on monetary policy.

However, the official cash rate does not give a clear indication of what is happening with Australian home loan rates as lenders move their rates on a regular basis, pushing up borrowing costs for new and existing customers.

Following lenders’ recent out of cycle rate increases, mortgage rates edged higher in September, with the average discounted rate for owner occupiers rising from 4.50% to 4.55%, according to recent data from CoreLogic.

“Whether lenders’ rates will lift further is dependent on a number of economic factors and at present Australian economic conditions are positive on the whole and have given the RBA no reason to change its current position on monetary policy.

GDP growth has been above potential levels and business conditions are positive. The pace of increase in household indebtedness has slowed and the labour market is strong. While wage growth is benign, it is expected to grow. That being said, inflation continues to underperform market expectations and national dwelling values continue to ease.

National Australia Bank’s Monthly Business Survey revealed that business conditions remained well above average and business confidence was around average levels in September. The latest Westpac Melbourne Institute Index of Consumer Sentiment revealed that consumer sentiment rose in September, however the recent leadership change in Canberra, increasing mortgage rates and declining house prices were weighing on confidence.

The most recent Labour Force Survey from the Australian Bureau of Statistics (ABS) revealed that employment growth is strong. The unemployment rate of 5.0% is the lowest in over six years, and is largely considered to be the natural rate of unemployment in Australia.

According to the most recent CoreLogic Hedonic Home Value Index, national dwelling values continue on their correction, taking the annual decline to 3.5% in October, signalling the weakest conditions since February 2012.

The Australian Bureau of Statistics’ (ABS) September quarter Consumer Price Inflation (CPI) report revealed headline and core inflation remain below the bottom of the RBA board’s target band, giving them little incentive to alter the cash rate.

In the minutes of the October monetary policy meeting, RBA board members reflected on the changes to lending standards and observed that standards could tighten further and competition for borrowers of high credit quality remained strong.

In a housing market where house prices are declining, home loan interest rates rising despite a stagnant official cash rate and home loan applications are being scrutinised more than ever before, it’s never been more important for prospective buyers to ensure they look good on paper and seek guidance from a qualified mortgage professional.

Increasingly, Australian consumers are responding to the tightened lending environment by seeking the guidance of a mortgage broker. According to the Mortgage and Finance Association of Australia (MFAA), the broker channel is growing, with over 55% of new residential home loans originating through brokers in the March quarter 2018.

Going forward, I would urge those looking to buy their first home or investment property, or looking to refinance an existing loan to speak to a mortgage broker first and early on in their home loan journey. 

SUSAN MITCHELL is the CEO of Mortgage Choice (pictured above).