The Reserve Bank of Australia (RBA) has cut interest rates from the 2.5 per cent cash rate by 25 basis points to a new record low of 2.25 per cent. This move by the RBA hopes to lower the cost business and consumer credit.
This week’s cuts will more than likely see the lowest rates in nearly 50 years. The majority of economists are predicting a second cut in the next 1-3 months, so all this begs the question: What does this low interest rate environment mean for the housing market? More entrants, more buyers and artificial housing prices?
The Reserve Bank Governor Glenn Stevens has said and acknowledged that cutting the cash rate has risked fueling rising house prices. “The Bank is working with other regulators to assess and contain economic risks that may arise from the housing market,” he said.
Investors will be among the groups most responsive to a rate cut. Negative gearing is becoming less attractive in regards to property. The gross funding gap will be less than one per cent, an incredible low grade for investment property; the result of which may see a popularity shift to the stock exchange and even margin lending for pure taxation purposes.
This being said, the rate cut could trigger a growth asset as opposed to an income asset for some property investors, conditions pending favourable to a seller. For those who can time their sales to lock in this return may benefit in the next 6-12 months based on their original cost bases.
For our conservative investors, this cut and any future cuts will also see monies shifted from cash deposits to stocks in search of higher income returns. This is the same with our self-funded retirees, still forced to draw minimum pensions of over double that of the cash rate for our over 65’s. No relief has been announced here as yet.
Take a look at your home loan rate and contact our brokers to compare your rates to those on offer across the market. Some banks have already cut rates to compete. If you wish to seek refuge in the stock exchange for higher investment income returns, please also contact our advisers to discuss your personal situation further.
Contact the team at Oncore Wealth Solutions today on 1300 654 484.
