While the majority of stakeholders appear to agree with the RBA’s decision yesterday to maintain the official cash rate at 3%, there are worrying murmurs of an interest rate upturn in the near future.
Real estate agency Laing+Simmons general manager, Leanne Pilkington, says talk in ‘some circles’ of the next rate movement being upward fails to account for the fact that consumers are still not spending.
“On the ground, the case for a near-term increase in rates is unfounded. Retailers are still doing it tough and there is heavy discounting occurring across the retail sector…From a housing perspective, transactional activity is ticking along with encouraging, if unspectacular, results occurring.”
“The market is heading into the traditionally more subdued winter selling period,” says Pilkington, “and as such we believe the next movement in rates should be downward to support the market during this time.”
Alex Parsons, CEO of RateCity, agrees, warning borrowers they could be experiencing the end of the falling interest rate environment.
“One of the barometers of interest rate directions is fixed home loan rates and while we are still seeing some fixed rates falling, their descent has slowed significantly, which could be a sign of lenders expecting funding pressure to stabilise or lift in the near future.
“For instance,” he says, “the average three-year fixed rate fell by 0.56 percentage points in the six months to October 2012, and in the past six months it fell by 0.36 percentage points.”
Since the RBA began lowering the cash rate in November 2011, borrowers with a typical $300,000 mortgage are paying $266 less in monthly repayments, he argues.
“But with some experts forecasting interest rates to rise by the end of the year, borrowers need to start preparing now to avoid the financial shock of higher repayments.”
HIA senior economist, Shane Garrett, argues that despite the 175 basis point reduction since late 2011, the discounted variable mortgage rate has only decreased by 140 basis points – or less when it comes to lending rates for small businesses – and that means the onus remains on banks to cut rates independently of the RBA.
“With the RBA’s own research indicating a fall in the banks’ wholesale lending costs over the past few months, the time for lenders to pass on the full RBA cuts is long overdue.”
Loan Market spokesperson, Paul Smith, agrees.
“Cost-of-funds issues have eased for many banks – many Australian savers would have seen evidence of this by the dropping interest rates on their savings accounts. This has opened the door for lenders to now move their rates independently of not just the RBA, but each other.”
Advertised interest rates may not fluctuate much in the coming weeks, says Smith, but that doesn’t mean there’s no scope to get a lower interest rate.
“Many banks and lenders are discounting interest rates of waiving fees, or both, for customers who apply some pressure and ask the right questions.”