RBA Update April 2017

By Matthew Kenworthy | Reserve Bank News

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.

What Comments Did They Make?

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:

  • When the long term plan for the property is to have it as an investment.
  • When there are other higher interest debts that you would aim to pay off first. This might include personal loans and/or credit card debt.
  • When you are expecting a short period of decreased income, which will then be followed by a return to normal income levels. An example of this might include going on maternity leave.

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.

About the Author

Matthew Kenworthy is a specialist in all aspects of Residential & Commercial Finance. He can assist all borrowers from First Home Buyers to Property Investors with Large Portfolios.