The Reserve Bank today announced it has decided to leave interest rates on hold. The cash rate has now remained at 1.50% for the past 8 months.
The next meeting is scheduled for Tuesday May 2.
By reinforcing strong lending standards, the recently announced supervisory measures should help address the risks associated with high and rising levels of indebtedness. Lenders need to ensure that the serviceability metrics that they use are appropriate for current conditions.
Lenders have been constantly revising these metrics over the past 12 months. Many borrowers who previously would have qualified for a loan now no longer qualify.
A reduced reliance on interest-only housing loans in the Australian market would also be a positive development.
At Quality Assured Finance we generally recommend Principal & Interest repayments for Owner Occupied loans. There are specific examples as to when an Interest Only loan may be more appropriate. But these situations are few & far between.
Some examples of when an Interest Only loan may be more appropriate for an Owner Occupier include:
Lenders have recently announced increases in mortgage rates, particularly those paid by investors.
Recently lenders have started increasing interest rates out of cycle with the Reserve Bank. Those with Interest Only loans have generally had the greatest increase applied.
Full notes from the meeting can be found on the RBA Website.