Portrait of young family sitting in front of house.

Official Cash Rate Stays Steady

After the Reserve Bank of Australia (RBA) decided to slash the official cash rate to the record low of 2 per cent at its May board meeting, speculation has swirled around the direction they were likely to take in June. The bank had implied that a further cut could be possible if economic and financial conditions allowed, but it looks to have closed the door on this suggestion with its latest announcement.

In a June 2 statement, RBA Governor Glenn Stevens concluded that the bank would retain the record low cash rate. For home loan holders and prospective buyers alike, this could offer some stability – at least for the time being.

Mr Stevens noted that the bank would continue to keep a close eye on data surrounding the economy and judge whether the current rate is doing its job to stimulate growth. In particular, he again raised the topic of Sydney house prices, which, according to recent figures from CoreLogic RP Data, have increased 15 per cent over the year to May 31.

However, the Housing Industry Association (HIA) has advised the bank and regulators not to take an overly hard-line approach when it comes to dampening the seemingly insatiable demand for homes in the Harbour City. HIA Chief Economic Harley Dale said the measures should be especially targeted, so as to not undermine growth in the real estate industry overall – particularly new home construction.

“Residential building is one of the few bright lights in the economy at the moment,” Mr Dale said in a June 2 statement.

“It would be unwise to interfere in the market to an extent that risks derailing activity in this crucial sector.”

What can you do?

While there’s been plenty said about the role of interest rates in the real estate industry, the Australian Bankers Association (ABA) has come out with some interesting insights into how households are handling the accommodating borrowing conditions. In a new report, the ABA shows that Australians have taken advantage of the low interest rate environment to increase their housing-related borrowings.

This has raised concern from some corners. Recent research from CoreLogic shows that housing debt accounts for around 91 per cent of total household debt, and the ratio of this to disposable income has been recorded at a record high of 140.3 per cent.

However, the ABA notes that households are well-equipped to take this kind of debt on board. In fact, ABA Executive Director of Industry Policy Tony Pearson said that growth in real estate borrowings is much slower than the level posted prior to the global financial crisis – and, even better, the average household is more than two years ahead on their mortgage repayments, thanks in part to low interest rates.

“While households are now increasing their borrowings faster than income, this increase in borrowings is being more than matched by an increase in the value of household assets,” Mr Pearson said.

With homeowners in a great position to take on the responsibilities of a mortgage, it could be a good time to see what you’re made of. Get in touch with our team of home loan professionals at Police Bank to sort through your options.