Chris Childs

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3 cash rate quotes for property investors

After what you could call a Christmas break to be envious of, the Reserve Bank of Australia (RBA) stepped back into the public eye with its cash rate announcement on February 2nd. Like clockwork, the RBA held the cash rate at 2 per cent – something it's been doing since May last year.

The banks have turned their back on the cash rate recently.

While the banks have turned their back on the cash rate recently (many increased interest rates last year at a time when the RBA stood still), this should spell stability overall. That means regularity on interest rates when you're taking out a home loan for property investment, which is always good news. But what exactly have people had to say about the decision? Let's pick apart some quotes from movers and shakers in the wake of the statement.

"A changed composition between investors and owner-occupiers"

This line comes from RBA Governor Glenn Stevens, in his brief dissection of the housing market. He is of course referring to the recent slowdown in lending to property investors, due to macro-prudential constraints from some worried parties like the Australian Prudential Regulatory Authority.

The Real Estate Institute of Australia said in January that investment real estate finance commitments had dropped. However, you've got to remember they're coming down from a very strong showing. Borrowing money to invest in Queensland real estate has changed, but it's still a very viable path to wealth creation.

What have economists and the like had to say about the cash rate?What have economists and the like had to say about the cash rate?

"We may see the cash rate move lower later in the year"

This sage prediction was made by Tim Lawless, from CoreLogic RP Data. In his analysis, he stated that the heat in housing market danger zones (looking at you, Sydney and Melbourne) has cooled down considerably. That means a significant obstacle between the RBA and rate cuts has been removed, so there's every chance the cash rate will go down in 2016.

Essentially, it improves the prospects for lower interest rates down the line – something any property investor will want to keep an eye on!

"Inflation is not dead. It is just resting"

Inflation is a key component in how the RBA decides what to do with the case rate. A cut to the rate can stimulate consumer demand and boost our economy's strength, helping us keep pace with the rate of inflation.

This is an "if it ain't broke, don't fix it" mentality.

The above quote, from Commonwealth Bank senior economist Michael Workman, indicates that inflation growth is a bit slow at the moment, which played into the RBA's decision to keep the cash rate the same.

It can be a bit confusing but basically this is an "if it ain't broke, don't fix it" mentality. Growth is stable across the country at the moment, and there's no risk of property markets overheating, so the Reserve Bank decided stability was fine for now.

How does this impact your property investment?

The cash rate plays a huge role in the cost of borrowing money to buy investment property, and the interest rates you'll pay on a mortgage in the long term. These costs can vary so wildly that any insight on the market is always going to be welcome when you're developing an investment strategy

Overall, the through line of the cash rate commentary seems to be that everything is fine for now. Conditions should remain more or less the same, with some risks when it comes to new home building. Without enough new housing supply, there could be some problems for growth in property.

But that's a story for another time. Once you sort through the multitude of articles about the cash rate, you can see that it's still as good a time as ever to buy property. That's because it doesn't depend as much on the market as it does your own situation. Want to work out if it's the right time for you? Give us a call!