The latest RBA rate drop is a boon for investors
The latest RBA rate drop is a boon for investors and it’s also great for those with an existing mortgage and anyone wishing to enter the property market. There’s also predictions of a further rate cut sometime around August. It’s what’s been dubbed the “global race to the bottom” and certainly we’re seeing countries such as Japan with zero interest rates. The cuts are being driven by inflation and slow growth. Other factors such as the end of the mining boom are also playing a part in the RBA’s decision.
Still, the fact is that we are living in an unprecedented time with the interest rates reaching historic lows of 1.75% and some experts recently predicting two more cuts this year. Click here for more information on the predictions in 2016.
The RBA minutes suggest we will be in a low interest rate environment for the foreseeable future.
To look at where we are in historical terms, we’ve been seeing continual drops and interest rate cuts over the past six years. The last time interest rates were hiked was back in 2010. Since then, it’s been a steady series of cuts each quarter.
Those old enough may remember the days of the late 80s and early 90s when interest rates were at crippling levels of 17%. It’s hard to imagine Australia ever returning to those days, but right now the property investment market is under a patch of sunlight.
As mentioned at the start, this is good news for virtually all Australians. For those with an existing mortgage, this suddenly means you have extra capital to play with and use for investment. Even a small cut on one’s home loan rate can save thousands of dollars. This in turn can go back into play as investment capital. For investors with a portfolio, you can access these record low rates to expand and add properties. And for those desperate to enter the world of property investment these historic low rates allow a platform to do so.
It’s also an opportunity to review existing loans to get a better deal and take advantage of the new rates. The last few months have seen a significant drop in home and housing approvals, and this rate cut will bolster the figures.
The beauty of Australia with its vast land and varied property markets is that there is no end to finding an affordable property in a growth area. Whether it’s South East Queensland, Brisbane, outer Sydney or Melbourne, or growing regional centres like Port Macquarie, there are countless markets to enter.
For the investor this means you can acquire a property with a loan that’s already cheaper than it was a year ago and have the benefits of positive cash flow on top of capital growth.
All the discussion about negative gearing is becoming less relevant as more and more properties will be positively geared and positive cash-flow.
There’s no doubt that this is a rare and golden opportunity. Those that don’t take advantage of such low rates and affordable housing will definitely have cause to regret it years later. We know that Australian property will always be attractive to both domestic and international investors. This exceptional period is a unique window of opportunity that would be foolish for canny investors not to open and enter.