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Property Investment: What does the interest rate cut mean for investors?

August 6, 2013 9:13 pm
posted by James Parnwell

interest rate cutThe Reserve Bank of Australia (RBA) today announced a record low official interest rate cut, this is sure to please homeowners and property investors around the country.

The official decision to cut interest rates by 25 basis points, brought it to it’s lowest level since 1959 at 2.5%.

Many Economists predicted the interest rate cut; saying that recent sluggish trading with China and pressure on the Aussie dollar would be the primary influence.

However, Australian households saving more than 10% of their income as well as slower investing in the mining industry were the Reserve Bank’s greatest concerns leading toward them making the decision.

Since November 2011, the interest rate has nearly halved in a series of RBA decisions.

Official Interest Rate cut history since November 2011

  •                   Nov 2011: 25 basis points to 4.5%
  •                         Dec 2011: 25 basis points to 4.25%
  •                         May 2012: 50 basis points to 3.75%
  •                         Jun 2012: 25 basis points to 3.5%
  •                         Oct 2012: 25 basis points to 3.25%
  •                         Dec 2012: 25 basis points to 3.0%
  •                         May 2013: 25 basis points to 2.75%
  •                       Aug 2013: 25 basis points to 2.5%

 

Already, both Labor and the Coalition have used the interest rate cut to enhance their two-day-old campaigns. It is the property managers, and property investors that are likely to be the most pleased with the news.

The Reserve Bank hoped that banks would even further cut rates to increase economy spending, and this was the case for some.

Westpac passed on a 28 basis points cut to their home loan customers while the National Australia Bank, Commonwealth Bank and Bank of Queensland passed on an RBA equal 25 basis points.

ANZ will not announce its decision until Friday, in accordance with their monthly review.

What does the official interest rate cut mean for homeowners and investors?

For those looking to sell, an August rate cut is welcome as we come into the spring season, the busiest season for real estate.

For homeowners and property investors, the passed on cuts mean that a person who owes $300, 000 on their home will save $46 a month.

To save more, it may be worth  asking your bank for a better deal off the back of today’s cut. If they are unwilling to budge, shop around.

Also, try to maintain the level of repayment that you are currently paying off. Looking at the cut as a way to pay off your mortgage sooner rather than saving the extra cash now is a more rewarding mindset in the long run.

While the cut is encouraging for many property investors to expand their portfolio or join the market for the first time, many financial professionals don’t believe it will make a huge difference.

Still, the encouragement is there with an expected spring increase in the market, it’s a great time to look into increasing your investments.

Drop us a line, we’ll get back to you as soon as possible with some helpful advice or opportunities.

 

Written by Jordan Cox and James Parnwell

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