RBA cash rate held again, housing prices continue to skyrocket

RBA cash rate held again, housing prices continue to skyrocket

The Reserve Bank of Australia has held the cash rate at a record-low of 0.10 per cent again at its Monetary Policy Board Meeting today.

The Reserve Bank of Australia (RBA)’s decision today to hold has been attributed to maintaining “highly supportive monetary conditions” until its goals are achieved, according to a statement by RBA Governor, Philip Lowe.

“The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range,” said Governor Lowe.

The RBA cut the cash rate three times in 2020, with one emergency cut mid-month necessary in March to respond to the economic impacts of Covid-19.

Meanwhile, housing prices are continuing to rise across the country, partially fuelled by the current low interest rate environment.

CoreLogic data released yesterday showed that national property prices grew at the fastest recorded rate since 2003 in February 2020. Nationally, dwelling values grew by 2.1 per cent over the shortest month of the year, with Sydney and Hobart both seeing capital city dwelling values spike by 2.5 per cent.

“Fomo” and low rates to blame

In a SMH article today, AMP Capital chief economist, Shane Oliver, attributed “government incentives, the unleashing of pent-up demand, the removal of responsible-lending obligations and a ‘fear of missing out’” to the surge in property market activity.

“The acceleration in home prices is likely to be starting to concern the RBA – but with average prices only just surpassing their 2017 high, growth in housing debt remaining relatively subdued at 3.6 per cent year-on-year and little evidence of a significant deterioration in lending standards at present, it and APRA are unlikely to reach for the macro-prudential lever just yet”.

New home lending also hit $28.75 billion in January, an increase of 44 per cent year-on-year (in seasonally-adjusted terms), according to the latest figures from the Australian Bureau of Statistics (ABS). ABS figures also found that the total value of owner-occupier home loans settled in January grew to a record high of $22.11 billion - up 52 per cent, year-on-year.

RateCity research director, Sally Tindall, said ultra-low interest rates have “put a rocket under the property market and it’s showing no signs of slowing down.”

“While low rates are driving current prices north, predictions of up to 20 per cent property price rises over the next couple of years are pushing people to panic buy,” said Ms Tindall.

“First it was toilet paper, now it’s property. People are rattled because they don’t want to miss out.”

How home loan rates have moved

Speaking on the housing market and current low interest rate environment, RBA Governor, Philip Lowe said: “Lending rates for most borrowers are at record lows and housing prices across Australia have increased recently.”

“Housing credit growth to owner-occupiers has picked up, but investor and business credit growth remain weak. Lending standards remain sound, and it is important that they remain so in an environment of rising housing prices and low interest rates,” said Governor Lowe.

According to the RateCity database, 40 lenders have cut 606 fixed and variable home loan rates since 1 January 2020.

Further, 14 lenders have hiked 63 home loan rates in the same time period. Currently 56 lenders are offering 151 home loan rates under 2 per cent.

If you’re looking to nab a low-rate home loan, it may be worth comparing your options – especially if you’re a refinancer. There are a range of deals on the market suited to refinancers, particularly those with LVRs under 80 per cent.

Lowest variable, owner-occupier home loan rates (principal & interest) on RateCity database 

Lender Home loan Advertised rate Comparison Rate
Reduce Home Loans Rate Cutter (LVR < 60%) 1.79% 1.88%
Homestar Finance Star Gold (LVR < 60%) 1.79% 1.84%
Pacific Mortgage Group Standard Variable (LVR < 60%) 1.89% 1.89%
Northern Inland Credit Union Dream Value Package (LVR < 60%) 1.89% 2.28%
Easy Street Financial Services Standard Variable Home Loan Offer (>$750k) 1.95% 1.99%
Freedom Lend Freedom Variable Home Loan (LVR < 70%) 1.97% 1.97%

Source: RateCity.com.au. Data accurate as of 02.03.2021.

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Learn more about home loans

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

What do people do with a Macquarie Bank reverse?

There are a number of ways people use a Macquarie Bank reverse mortgage. Below are some reasons borrowers tend to release their home’s equity via a reverse mortgage:

  • To top up superannuation or pension income to pay for monthly bills;
  • To consolidate and repay high-interest debt like credit cards or personal loans;
  • To fund renovations, repairs or upgrades to their home
  • To help your children or grandkids through financial difficulties. 

While there are no limitations on how you can use a Macquarie reverse mortgage loan, a reverse mortgage is not right for all borrowers. Reverse mortgages compound the interest, which means you end up paying interest on your interest. They can also affect your entitlement to things like the pension It’s important to think carefully, read up and speak with your family before you apply for a reverse mortgage.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

Does the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

How do you determine which home loan rates/products I’m shown?

When you check your home loan rate, you’ll supply some basic information about your current loan, including the amount owing on your mortgage and your current interest rate.

We’ll compare this information to the home loan options in the RateCity database and show you which home loan products you may be eligible to apply for.

 

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

What is a standard variable rate (SVR)?

The standard variable rate (SVR) is the interest rate a lender applies to their standard home loan. It is a variable interest rate which is normally used as a benchmark from which they price their other variable rate home loan products.

A standard variable rate home loan typically includes most, if not all the features the lender has on offer, such as an offset account, but it often comes with a higher interest rate attached than their most ‘basic’ product on offer (usually referred to as their basic variable rate mortgage).

What is a comparison rate?

The comparison rate is a more inclusive way of comparing home loans that factors in not only on the interest rate but also the majority of upfront and ongoing charges that add to the total cost of a home loan.

The rate is calculated using an industry-wide formula based on a $150,000 loan over a 25-year period and includes things like revert rates after an introductory or fixed rate period, application fees and monthly account keeping fees.

In Australia, all lenders are required by law to publish the comparison rate alongside their advertised rate so people can compare products easily.