Rates For Mates

Subject: Kock for a Rate Drop  

Sub: Yes, it’s another interest rate decision week 

Hi, 

The RBA meets this week meaning an interest rate decision. It should be better news than the “no change” decision last month. 

I won’t bore you with another inflation and unemployment rare chart, just to see that if the RBA were looking for confirmation both were moving into rate cutting direction last time, they got it since. 

Michele Bullock (RBA Governor) would be as popular as Kyle and Jackie O in Melbourne (if you don’t know them, don’t ask) if interest rates aren’t decreased Tuesday afternoon. 

I will be quoting only the cash rate here. Your mortgage rate will be approximately 2% above this for an owner-occupied mortgage.  

1. Where we have been 

2. What the banks are forecasting 

3. What it means for you – 1. interest ate repayments 

4. What is means for you – 2, borrowing capacity 

5.  What is means for you – 3. house prices 

6. What now? 

TL:DR 

1. Interest rates will decrease this week. 

2. This brings welcome relief for some and opportunity for others. 

3. There are three important implications of decreasing interest rates. 

4. There is no reward for fence-sitters. 

1. Where have we been? 

For those on variable rate mortgages over t east five years, it has bene a tough run.  

We went from a COVID-era Cash rate of 0.1%. up to 4.35% for all of 2024.  

Here is a 10year history chart I compiled from RBA stats: 

Quite a journey! 

2. What the bank are forecasting 

This table form Canstar shows all Big 4 banks are expecting a cut this week. 
 

 
Interesting, CBA and ANZ are predicting one more after this week While NAB are going to two and Westpac three more.  

Go Westpac – take 1% off your mortgage rate if they are correct. 

3. What it means for you 1: Interest rate repayments. 

If you have a mortgage now or planning for one (hint: we can help!), here is a table of Principal and Interest repayments across various rates and loan amounts: 

4. What it means for you: 2. Borrowing capacity  

Each decrease in interest rates helps your borrowing capacity i.e. you have more buying power.  
Each case is different as depends on your situation, but let’s assume that each 0.25% interest rate decrease, increases your borrowing capacity by 3-5%. 
Two provisos: 

• This is a general rule – we can assess what it means for you 

• I am not encouraging a borrow all you can approach – we help you think through your affordability.  
   

5. What it means for you: 3. Property prices  

The downside is that property prices generally increase as interest rates drop. This of course means more competition at auction and offer time as everyone has larger budgets. 

The last few years have been an exception as prices continued to rise despite the ugly picture in section 1 – this was due to record population growth and demand outstripping supply – I know you are sick of me saying it, but this continues to apply. 

So, What Now? 

Getting in or expanding in the property market does not reward the spectators.  

If you want to see what you can do now, please reach out and we can put a plan together for you.