Buyers struggling despite record low rates
The Reserve Bank has kept the official cash rate at a historic low of 1.5 per cent — a decision expected to give some further relief to struggling mortgage holders.
The decision was handed down this afternoon, just hours before the federal Budget is expected to officially released this evening.
It also comes at a time when southern housing markets, in particular, continue to slide.
RBA governor Philip Lowe said that the “outlook for the global economy remains reasonable, although growth has slowed and downside risks have increased”.
Pointing to the housing downturn, among other factors, Dr Lowe said adjustment in established housing markets was continuing.
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The decision to hold the cash rate again comes after the latest CoreLogic Hedonic Home Value Index, found that national dwelling values had been trending lower for 17 months and fallen by a cumulative 7.4 per cent since peaking in October 2017.
At the time, CoreLogic head of research Tim Lawless said housing values were lower across six of the eight capitals and five of the seven ‘rest of state’ markets in the past month.
Even Brisbane, which has been seen as a “level market”, was not immune, down 0.6 per cent in the past month.
The cash rate reflects what the central bank charges commercial banks on overnight loans and influences all other interest rates.
It was last cut in August 2016 and hasn’t been hiked since November 2010.
But the decision to hold the cash rate is expected to be welcomed by mortgage holders, with a recent survey finding many were already struggling to pay pack their debt — despite record low interest rates.
The Finder survey of 828 mortgage holders nationally found that 40 per cent were living month to month, while seven per cent were barely able to make payments and two per cent were behind in repayments.
Finder insights manager Graham Cooke said financial hardship is a pervasive problem in Australia.
“Living month to month is a reality for millions of Australians, so if you’re in this situation, you are not alone,” he said.
In Queensland, 54 per cent of mortgage holders say they are comfortably meeting their repayments, with 39 per cent living month-to-month but scraping by.
Two per cent are behind in repayments while six per cent are barely making do, the survey found.
Mr Cooke said now was the time to hunt for a better deal.
“Switching to a rate that is half a percentage point lower, like from 4% to 3.5%, could save the average Aussie more than $1,300 a year on their mortgage,” he said.
“Savings of any kind will be especially important if we are struck with the larger economic downturn that some are predicting.”
Many of Finder’s panel of experts predicted the cash rate would hold today but that interest rates would likely fall further before the end of the year, with 80 per cent believing it would fall to just 1.0 per cent.
REA Group economist Nerida Conisbee said the likelihood of a cut was increasing.
“If economic data continues to deteriorate, then we will likely see movement in the second half of the year “
But the majority of experts believe that won’t happen until after the federal election or any downward shifts in unemployment — whichever comes first.