The news coming out of the Australian economy hasn’t been too encouraging of late. With high unemployment combined with sluggish wage growth, brokers should be assessing the possible impacts on the market, and on their clients.
Official figures have reported a spike in the unemployment
rate to 6.4% and a lag in wage growth
, with a rise well under inflation of 2.6%. This has sparked discussion over what will be the Reserve Bank’s next move, and how it will affect both the market and consumers.
FBAA chief executive, Peter White said that if the recent unemployment rate remains a continuing trend, then it could prompt the RBA
to reduce the cash rate by a further 25 basis points. However, he doesn’t believe this will be the case.
“I don’t think the unemployment rate will remain where it is. More likely, I think we will find that unemployment rates will drop back a bit, and we will see interest rates going up again early next year. This current climate is just a trend, which we will ride through and come out the other end. I don’t see this as a long term problem from a consumer or market point of view. This is just a spike.”
MFAA chief executive, Phil Naylor says that the low wage growth is a “double edged sword” as it is good for helping interest rates to stay down, but it also impacts on a consumer’s ability to spend and invest. Thus, brokers should be reassessing their clients’ situations.
“From a broker point of view, tougher times are usually a period when broker value comes to the fore, ensuring current loan packages are still appropriate for the changed circumstances of their clients.”
1st Street Home Loans director, Jeremy Fisher says brokers should always be factoring in a buffer, irrespective of market sentiment and official figures, to ensure clients are safe from economic fluctuations.
“Our brokers ensure that all our clients can comfortably service the loan based on a 2% buffer on the rate. This means test helps to protect our clients in the event of future rate rise. We also suggest to all clients that they maintain a buffer in their offset account to cover a 3 month period of hardship (out of work, maternity leave etc.).”