If you are looking for an investment loan or home loan in Perth, the news from the Reserve Bank of Australia (RBA) for September was good. The cash interest rate is going to remain at a record low 2.0%. We are going to summarise the statement of RBA Governor Glenn Stevens. Then, we will “read between the lines” and tell you what it could mean for you and for the future.
What Governor Stevens Said
According to Governor Stevens, these global factors influence the Australian economy: the US economy is growing, while the economies of China and other East Asian countries are “softening.” The net effect is a “moderate pace” of growth on a global basis. However, what he sees as “key commodity” prices are going lower, affecting Australia’s “terms of trade,” which he sees as “falling.”
The media don’t seem to be paying a lot of attention to his next statement yet, but we are: “The Federal Reserve is expected to start increasing its policy rate over the period ahead…”
Governor Stevens then went on to acknowledge that “other major central banks are continuing to ease policy.” He feels that China has turned global equity markets “volatile,” but that other global markets have stabilised. Globally, interest rates for “creditworthy borrowers” and “sovereigns” who borrow long term are what he calls “remarkably low.” When it is all put together, Governor Stevens sees the global economy as “very accommodative.”
Governor Stevens sees global and national factors combining to continue what he calls a “moderate expansion” of our economy. While Australia’s growth continues to lag behind long-term averages, unemployment has remained steady while employment has expanded over the last year.
He sees growth in Australia as likely to grow at a rate that is still slower than we would like, but with the benefit of keeping inflation in check. Even with a lower Australian dollar, inflation is predicted to happen at a near-ideal rate for the next few years.
Governor Stevens feels that the interest rate “needs to be accommodative.” He believes that the current low interest rates are doing their job, stimulating both spending and borrowing. Australians are borrowing more, keeping the housing market “broadly steady.” While Sydney is still seeing rising prices in their housing market, the rest of Australia is steady or in a state of slow growth.
Governor Stevens also mentioned something that investors should pay close attention to. According to Governor Stevens, “The Bank is working with other regulators to assess and contain risks that may arise from the housing market.” We will talk about this later.
Governor Stevens added the opinions that lower long-term interest rates have supported prices for commercial property and that equity prices have been more volatile and moved lower as of late. He feels this is consistent with global markets and that the decline in key commodity prices is having an effect on the Australian dollar.
What It All Means to You
We specialise in brokering home loans and investment loans to help Perth area clients build wealth through rental properties. For investors, we see two statements that foreshadow changes which could affect the market for investment property for the next few years.
It is becoming obvious that Governor Stevens intends to break the pattern of record low interest rates and start raising the RBA cash interest rate again soon. Governor Stevens mentioned the RBA “increasing its policy rate over the period ahead.” This means that the record low interest rates are about to start rising again.
In addition, Governor Stevens mentioned that the RBA is “working with other regulators to assess and contain risks that may arise from the housing market.” Do not underestimate this. We have already written about it elsewhere on this blog. The “short version”: the Australian Prudential Regulation Authority (APRA) is instructing lenders to make less loans to investors. Consequently, it is a lot harder to get an investment loan now than it was even three months ago.
Call Purely Finance Today
At Purely Finance, we know which lenders are the most likely to approve an investment loan, depending on your financial situation. In a market like Perth, it is important to get it right the first time.
To learn more, call us today: (08) 9453 8888.