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Official Cash Rate a contentious issue for property market

On Jul 30 2013
Tagged as:
  • Home Loans

Every month the Reserve Bank of Australia (RBA) announces a decision on the Official Cash Rate ...

Every month the Reserve Bank of Australia (RBA) announces a decision on the Official Cash Rate (OCR), which directly affects the property market in numerous ways.

The current cash rate is sitting at 2.75 per cent, which fell from 3 per cent in May this year.

For residential property buyers, owners and investors, these few numbers can make a big difference to their decisions around selling or buying a property.

Banks and lenders around Australia usually base their home loan interest rates on the OCR, so this number is closely followed by all those in the property game.

A lowered rate will usually see a slew of lenders lower their variable mortgage rate by a similar percentage, as was seen in May this year. The fixed mortgage rates are usually affected too, meaning that first time buyers may have more of an incentive to purchase a property while the interest rates are low.

Conversely, a higher OCR will mean that those currently paying off their mortgage on a variable or split lending rate will see their payments increase, while those looking to buy may hold off on purchasing while the rates are high.

The latest announcement was made on July 2, when RBA governor Glenn Stevens explained the decision to hold the OCR steady by saying that "the pace of borrowing has remained relatively subdued, though recently there are signs of increased demand for finance by households".

The next decision is due in the opening days of August.

Each time there is a new announcement, property industry watchers and players release statements around the perceived and real effects that the OCR has historically had, and may have in future.

Master Builders Australia (MBA) is one such group that directly feels the effects of any cuts or increases. Chief economist Peter Jones said recently that "home builders are banking on further improvements and for lower interest rates to continue to work to drive an improvement in building activity".

President of the Real Estate Institute of Australia (REIA) Peter Bushby recently highlighted how the average variable interest rate dropped to 5.9 per cent from 6.2 per cent after the OCR change in May.

"The market has been reacting positively on the recent cash rate cuts. The first quarter of 2013 had the seventh consecutive improvement in housing affordability," he said.

On July 25, the Housing Industry Association (HIA) released a statement calling for the RBA to make further cut rates in the August meeting on the 6th, saying that a "benign inflation outcome for the June quarter" necessitated for a further drop.

With so many industry players invested in the outcome of the monthly meeting, it makes sense for those interested in the market to pay close attention as well.

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