The Reserve Bank of Australia (RBA) held its monthly meeting on Tuesday to decide on the cash rate for the month ahead.
As predicted by most of Australia’s leading economists, the cash rate is to remain on hold at 1.5%.
An interesting monetary policy statement...
The monetary policy statement which is released with the cash rate decision by the Governor of the RBA, generally consists of bland, repetitive, and observational commentary on the Australian and global economies.
However, this month in addition to all the normal stuff the Governor of the RBA, Phillip Lowe, raised concerns about the Australian housing market and directly addressed issues like the rapidly rising property prices on the East coast and the increasing levels of household debt.
Mr Lowe stated that “Growth in household borrowing, largely to purchase housing, continues to outpace growth in household income” and that “Lenders need to ensure that the serviceability metrics that they are using are appropriate for current conditions.”
Mr Lowe praised recent moves by the Australian Prudential and Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC), which he said should help address the risks associated with high and rising levels of indebtedness.
Last week the APRA instructed the banks to limit interest only loans to 30% of the total new mortgages (down from 40% previously) limit investor credit to “comfortably remain below” a previous set cap of 10% annual growth, whilst ASIC pledged to closely monitor lenders and mortgage brokers recommending loans to borrowers who cannot afford them.
What can we expect going forward?
It is clear from this month’s monetary policy statement that whilst there has been no movement in the cash rate, we can expect to see banks become stricter in certain areas of lending with potential interest rate increases independent of any cash rate movement.
Head of APRA, Wayne Byres, has commented on the matter since the RBA’s decision was released. Mr Byres has said that APRA “can and will do more” to ensure greater than normal caution in residential lending.
Mr Byres also mentioned that it is increasingly likely that tighter rules on assessing mortgage risk will be introduced in the future.
Questions or concerns?
If you have any questions or concerns regarding your current home loan solution in the current market, please do not hesitate to contact iconic on 1300 663 943.
iconic offer a complimentary mortgage review service where we review your current solution and compare with the market to ensure that you are using an up to date and suitable product and interest rate.
Thanks for reading guys, enjoy the rest of the week, and have a great weekend!
**The information contained is general only and your personal circumstances have not been considered. All information contained has been sourced from the following websites: http://www.rba.gov.au/media-releases/2017/mr-17-07.html; http://www.news.com.au/finance/economy/interest-rates/rba-keeps-cash-rate-on-hold-as-home-prices-soar/news-story/0ff7d0f5331a0f533420ca5179cbebfc. Please click here to view a copy of our privacy statement.