The Reserve Bank of Australia (RBA) has again remained cautious, leaving the cash rate on hold at 1.50% during their April 2018 rate review meeting. Rates have now been on hold since October 2016. How long will they continue to stay on hold?
Disclaimer: Comments made in this article are either general in nature or quoted from the RBA press release. You should not solely rely on the information of this blog. You should consider seeking expert financial and/or credit advice before making any investment or house acquisition decisions.
RBA Governor Philip Lowe commenced his April press release on the cash rate by making several references to overseas, in particular America and China. As first home buyers, you should understand that Australia’s economy is largely impacted by both the American and Chinese economies. What goes on in these countries can actually impact the rate of interest you pay as a home loan customer to an Australian bank.
Philip Lowe made reference to the current economic strength of these two countries and despite some recent volatility in sharemarkets around the world (on the back of US President Donald Trump changing the direction of the US’s foreign trade policy), overall the RBA seemed quite pleased with what they currently see on the international scene. This points to potential upwards pressure on Australian interest rates down the road. Three of Australia’s ‘big 4’ banks are predicting one rate increase later in the year.
In regards to what is going on in our own backyard, here are the highlights from the April media statement:
RBA on the Economy
- “The Bank’s central forecast remains for faster growth in 2018”.
- “Business conditions are positive and non-mining business investment is increasing. Higher levels of public infrastructure investment are also supporting the economy”.
- However, “one continuing source of uncertainty is the outlook for household consumption (although consumption growth picked up in late 2017). Household incomes are growing slowly and debt levels are high”.
- “Employment has grown strongly over the past year, with employment rising in all states”.
- “The strong growth in employment has been accompanied by a significant rise in labour force participation”.
- “The various forward-looking indicators continue to point to solid growth in employment over the period ahead, with a further gradual reduction in the unemployment rate expected”.
- “The unemployment rate has declined over the past year, but has been steady at around 5.5% over the past 6 months
- “Wage growth remains low, although the stronger economy should see some lift in wage growth over time”.
- “There are reports that some employers are finding it more difficult to hire workers with the necessary skills”.
RBA on Inflation
- “Inflation remains low. Inflation is likely to remain low for some time, reflecting low growth in labour costs and strong competition in retailing”.
- “A gradual pick-up in inflation is, however, expected as the economy strengthens”.
RBA on the Property Market
- “The housing markets in Sydney and Melbourne have slowed”.
- “Nationwide measures of housing prices are little changed over the past 6 months, with prices having recorded falls in some areas”.
- “In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years”.
What will the RBA likely do with the cash rate for the remainder for 2018?
Currently, the market is saying that no rate changes are on the cards just yet (despite the record run of being on hold). The ‘big 4’ banks currently have these predictions:
- ANZ, CBA, NAB – one 0.25% rate increase late in 2018
- Westpac – no rate changes in 2018
Wesptac is the only member of the big 4 banks that doesn’t think rates will rise in 2018
I’m about to start looking for my first home. What should I do?
A great place to start is to speak with a qualified Mortgage Broker whom specialises in first home buyers. A competent Mortgage Broker can determine your borrowing capacity, assist you compare home loan options, help you get a home loan pre-approval, guide you through the whole finance process and of course, answer any jargon you don’t understand.
At First Home Buyers Australia (FHBA) we have linked up with Mortgage Australia Group (MAG) to provide the best mortgage broking service for first home buyers in Australia – FHBA Mortgages, powered by MAG. Why not start with a complimentary consultation with an FHBA Broker? Click here to find out more!
I’m still saving for a home deposit – does the RBA’s announcement effect me?
Unfortunately, the rate of interest on savings accounts are relatively low at the moment. But when saving for a home deposit, as cliche as it may sound, every bit really does count. Here are some hot tips:
- Hot tip 1: Look at your expenses and consider whether you can cut back on any of your lifestyle expenses. A good place to start is our free Budget Planner.
- Hot tip 2: When was the last time you looked at how much interest your savings is earning? When you have a spare moment, take the time to check your rate of interest and compare this to other savings accounts and term deposits around the net. Some of Australia’s leading comparison sites include Mozo, Canstar, Finder and RateCity.
- Hot tip 3: The First Home Super Saver (FHSS) became law in December. Read up on how it works and consider whether this could be something that will help you save your home deposit quicker. How the FHSS works.
I have some money saved, but I’m not sure if it is enough?
Working out how much you need can be tricky. Have you tried our FHBA Deposit Estimator? It gives you a quick snapshot of how your savings are going versus an estimate of how much more you might need to save in order to have the complete deposit. And it’s free! Try it now!
I want to know more about the RBA decision
Interested in reading the full RBA statement from the April 2018 board meeting? You can access the RBA media press release here.
When is the next RBA board meeting?
The next RBA board meeting will be held on Tuesday the 1st of May.
If you have any questions get in touch with your FHBA Coach today – we’d be happy to help!
First Home Buyers Australia
Did you know?
Did you know that you can protect yourself from a rate rise as a mortgage borrower? A fixed rate home loan allows you to lock in an interest rate for a period of time, such as 1 year – 7 years. This gives borrowers certainty around home loan repayments. Fixed rates have been rising in popularity over the last few months. But how do you choose whether to get a fixed rate home loan or go with the more common variable rate home loan option? Click here to learn more about your first home loan options.