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Video: Record low interest rates hold! September RBA Wrap

Video: Record low interest rates hold! September RBA Wrap

The Reserve Bank has left interest rates on hold at 2.5% at its September meeting, which marks the longest period in over seven years since interest rates have moved.

To talk more about what that means for consumers, Laine Lister is joined by RateCity product director Peter Arnold.

Q: Pete, thanks for joining me. As I said, rates on hold again for a very long time now. What does that mean for consumers and variable borrowers?

So it’s been a year since the last cut, it’s been four years since the last rate rise. Good news is, there’s still very low rates out there, lots of deals out there. We’re seeing increased competition in the fixed rate space – 4.99% for five years, that’s a long time at a low rate. Everyone’s got to get out there and make sure they’re on one of these hot deals.

Q: On one hand interest rates are coming down – they’re at record lows. On the other hand some institutions are making it a little harder for people to get a loan at the moment. So can you tell me what that means?

That’s right. We’re seeing really low rates. But banks using another lever called LVR.

Q: Can you explain in simple terms, what is LVR.

LVR is the banks’ term for how much they are willing to lend you relative to your loan size. So for those at home, that means for a given loan size if you’ve got a lower LVR you need a bigger deposit. For example, on a $400,000 loan if you’ve got a 95% maximum LVR that means you need a 5% deposit – that would be $20,000 you need as a minimum.

Q: So tightening lending rules. Is it necessarily a bad thing?

Actually no. The RBA has been very vocal throughout this long, low part of the rate cycle that it’s not a ticket to go and borrow up big. It’s actually an opportunity to pay down some of your loans. Use it as an opportunity to reduce your debts, get any big mortgages under control. Don’t go and borrow the most you can, don’t rely on the bank to tell you how much you can borrow – do your own sums; consider every expense you’ve got and borrow within your means.

Great, thanks Pete. As we said again, interest rates on hold at 2.5% in September and thanks very much to Pete for all of the tips and advice for consumers and we’ll catch up again with him next month.

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