Whats happening with interest rates

Whats happening with interest rates. This is a good question these days as we have the banks raising rates and the RBA on hold right now. Firstly why are the banks making a grad for money, is it greed or good business. Well the answer is a bit of both, the government wants to ensure the banks are stable and have no requested they hold x amount of cash reserves. So the fastest way to raise this cash is to take it from their customers and this is why interest rates have now increased.

What I don’t understand is the raising of rates against investment properties. Yes the government wants to slow the property market down but this only really applies for the Sydney and Melbourne market places. The other cities are doing well and capital growth is inline with what we expect. The reason the government gives people tax incentives to people wanting to invest in real estate is to remove as much reliance in the future on pension payments. By offering incentives to people investing, they promote wealth creation and reduce the reliance on Government hand outs for people in the future.

Then you have the RBA who are in control of the interest rate. They have so far held off a drop in rates but I cannot see any further increases coming in the near future. In fact I would put money on the next rate drop being down.

Synopsis

Of the 28 economists polled by Bloomberg last week, 17 expected the RBA to sit tight and 11 forecasted a cut in the official cash rate by 0.25% to 1.75%.

By those banking on a cut (pun intended), much was made of the impact of the bigger banks increasing home loan interest rates by around 0.2% during late October. Yet, whilst a headline issue, its real impact on the economy has been exaggerated.

Looking forward, however, most of the 28 expect official interest rates to fall by the February 2016 RBA meeting.

Overall View

So if your on a variable rate right now, sit on it. If you have an investment property then fixed rates are always worth looking at as they assist with budgeting, interest rate  movement does not affect rental income. But we are highly confident that rates are going to fall so keep that in mind before fixing.

If you’re not sure, call me and I will look over what you have and give you an educated response as to what is best for you.

Alistair Kelsall  0405 131 333