The rate cuts are most noticeable in fixed rate loans. Fixed rate loan prices are a great predictor of future interest rate movements. The banks are essentially betting their own money on the Reserve Bank moving rates in the direction their fixed rate is pointing.
“The downward drift in rates is especially prevalent in fixed loans, with seven lenders cutting their rates by an average of 0.3 percentage points over the past week, according to Canstar. Four lenders cut variable rates by smaller margins,” reports The Guardian.
It reports that Australia’s interest rate is expected to fall from 4.35 per cent to 3.6 per cent by this time next year.
Fixed interest loans are pointing to a potentially steeper drop over the longer term.
“Many two- and three-year fixed loans are now priced at a full percentage point below standard variable rates, which equates to four quarter-point rate cuts,” The Guardian says.
This will be welcome relief for mortgage holders who will get some hip pocket relief and for prospective buyers who will see a lift in borrowing power.
It may also put some further puff in the property market so waiting for rates to drop before you buy is not always a better move financially.
The best time to buy is when you’ve got some independent financial advice and understand your own property buying budget, including building in a buffer for rate moves or other unexpected costs.
Then whatever moves life makes – the market, your rates, your income or your partner – you’ll be well placed to adapt without breaking the bank.
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