Investor rates likely to stay low

By Gerv Tacadena | 06 May 2020

Investors rates are likely to stay low over the next few years, given the projections that the Reserve Bank of Australia will keep the cash rate at 0.25% until 2023.

The RBA decided to hold the cash rate in its monetary policy meeting this month, citing the need for a stimulus given the economic disruption caused by the COVID-19 outbreak.

An analysis by CoreLogic said neither the inflation nor the unemployment rate will be in a position to trigger an increase in the cash-rate target for the next couple of years.

"The RBA has previously been clear that the cash rate won't move higher until inflation is well within the 2-3% target range and labour market indicators are trending towards full employment, implying an unemployment rate around the 4.5% mark," it said.

A recent forecast by Westpac holds a similar view, saying that it is unlikely for the RBA to meet its unemployment target, particularly with recent shutdowns due to the economic impact of the COVID-19 outbreak.

Also read: Price gains likely after COVID-19

Given the current rate environment, it is likely that the average variable mortgage rates for both investors and owner-occupiers will remain low.

Currently, the average mortgage rates charged to investors are in the low 3% range while the loan costs for owner-occupiers are already below 3%. Fixed-term mortgages are also at historic lows.

"Such a low cost of debt is a key factor that should help to support housing demand as the economy emerges from the COVID-19 hibernation," CoreLogic said.

The low-rate environment will also boost the presence of refinancers in the market, especially those who are seeking the most competitive rates available.

Peter Koulizos, chairperson of the Property Investment Professionals of Australia, said the low-rate environment will help ease the negative risks of the COVID-19 outbreak on house prices.

"Property owners are well-placed to ride out any temporary downturn. Whenever there is a global financial shock, some commentators predict huge property price falls, which ultimately don't happen," he said. "There may be a slight downturn in prices over the short term, but real estate is a long-term investment that has historically shown resilience time and time again."

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