The Rate Rise Drums are Getting Louder (But Are Still Distant)

One reason why we have had a property boom is because, for the last few years, we have had ultra-low interest rate – rates that will not be available for ever.

When rate rises do eventually come, they will take more heat out of a frenzied property market.

For almost 10 years, Central Banks around the World have been pumping money into the global economy to keep things moving.  Now, across the planet, economic conditions look healthier – meaning that Central Banks can start taking the foot of the accelerator and we can all expect rate rises.

The Bank of Canada has now increased interest rates twice and, this week, the Bank of England indicated it was minded to increase rates soon.  Australian economists increasingly expect the Reserve Bank (RBA) to follow suit.

The National Australia Bank (NAB) is now forecasting Australian interest rates will increase rates four times before the end of 2019.

The Australian economy is looking healthier by the minute; jobs are increasingly plentiful; there is a tsunami of infrastructure hitting us; and the resources decline is coming to an end.

While mortgage repayments are likely to come tougher, the property market is still likely to hold up.

This is particularly true as, even with four rate rises, the RBA’s cash rate will still only be at 2.5 per cent by end of 2019.  This is still well below what it estimates to be a neutral position, suggesting monetary policy settings will still be at a level where the banks want to keep stoking the fires rather than cooling them.

So, what does that mean for you?

If you already have a mortgage, you can:

• Expect the property market to hold up
• Factor in some gradual and modest rate rises (you may want to make hay while the sun shines with your mortgage repayments)
• Look at fixing part of your interest rates

If you are looking to buy a property, you can

• expect there to be less competition as slightly higher interest rates stop people getting ahead of themselves.