Cash rate on hold in October but low rates prevail

The RBA has left the cash rate on hold at two per cent this month, but some home loan rates are continuing to drop as the spring mortgage market heats up.

Variable rates are now as low as 3.89 per cent (as at 7 October) while a number of lenders are offering one or two year fixed rates below 4 per cent.

RateCity’s Money Editor Sally Tindall says the fact the RBA kept rates on hold this month could make buyers complacent when it comes to finding a home loan.

“Whether it’s variable or fixed, rates are at historic lows and buyers will end up ahead if they make the most of the competition in the marketplace.

“Five year fixed rates are now, on average, 0.86 percentage points lower than 18 months ago, so if you prefer the security of a fixed rate, now could be a good time to consider one,” says Tindall.

While competition runs hot in regards to interest rates, there has been a tightening on borrowing criteria.

“Lenders are cracking down on risky borrowing, so buyers will need to live in their own home with a deposit of at least 20 per cent,” Tindall says.

A rate cut is definitely on the cards over the next few months, potentially as early as next month in time for the Melbourne Cup, but increasingly likely in the first few months of next year.

Dr. Andrew Wilson, Domain Group’s Senior Economist says that house price growth could be a factor in the RBA’s future decisions as signs that the Sydney market is coming off the boil start to appear.

“Most capital city housing markets continue to weaken with auction clearance rates in Sydney now well down on the record high rates of autumn and the Melbourne auction market also showing early signs of weakening. House price growth rates will likely follow auction clearance rates downwards for the remainder of the year,” Wilson says.

Chief Operations Officer at LJ Hooker Home Loans, Paul O’Regan says a reduction in the cash rate will help boost the overall economy.

“I think there is a higher than average possibility we will see a cut by the end of the year. We are starting to see unemployment rise and consumer confidence isn’t fantastic and we need something to stimulate the economy. We know property market strength is starting to pull back and that has always been one of the big fears for the RBA,” says O’Regan.

O’Regan believes a rate cut will help property sales in Perth, Adelaide and Hobart without driving up the Sydney and Melbourne markets.

“I wouldn’t be suggesting we would see a big impact to the property market but it would be a big vote of confidence,” he says.

RateCity comparison – average home loan rates compared to 18 months prior

– as at 6 October 2015

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