The RBA have kept the cash rate on hold at 2% for November. The Aussie dollar is hovering at around $0.71US which is helping to boost major exports including international tourism.
Latest inflation is tracking at 2.1% annually (the RBA target is between 2-3%) and trending down. We will probably see another cut by the RBA by March/April 2016 if not next month to help stimulate extra spending and inflation.
As you know banks have increased their mortgage interest rates across the board citing higher capital reserve requirements by APRA. The capital reserve increase has gone from 0.16% to 0.25%.
What this means is that for every $1.00 that a bank ‘lends,’ they must hold $0.0025 in cash. Or put another way, on a typical $450,000 home loan, banks only need to hold $1,125 (a quarter of 1%). This is fractional reserve banking and is the primary way that our money supply is created and added to.
All money and credit created must actually be borrowed into existence by someone, with interest rates controlling the velocity at which that money flows through the economy.
Right now the trend is to divert money creation away from property (land value) hence the increase in mortgage interest rates which are even higher for investment loans. Do not be swayed by this. We have been here before (approx. 18 years ago) and this is the cycle at play.
To questions of whether to look at fixed rates or not, my take is fairly simple. If I’m still in acquisition phase I’ll give greater consideration to remaining on variable rates to maintain full flexibility in refinancing. If I’m in consolidation phase then fixing can be considered.
You can also opt to split your loans between variable and fixed. It all boils down to your risk appetite and investment goals. Simon and his team are all over the current finance landscape and can assist with all lending requirements including that of friends and family.
Congratulations to those that have recently secured property through us in Coomera and Pimpama. The $1 billion Coomera Town Centre is now about to begin. This new infrastructure will increase adjacent land prices however our ideal purchasing window is now beginning to close as well priced land is now much harder to source.
Darwin is also set to greatly benefit in future Northern Australia investment and development in line with the Asian Century.
As always we’ll keep you posted on new property investment opportunities as they arise.
Once again thanks for all your referrals and please keep them coming!
Wealth consists not in having great possessions, but in having few wants – Epictetus