RBA Rate Decision – July 2017

FACT SHEET: Changes on Government Fees and First Home Initiatives (Effective since 1 July 2017)

 

Today the Reserved Governor and the Board met and they’ve kept the cash rate on hold at 1.5% for the start of the new financial year. Let’s have a look at some of the economic data that we’ve seen over the last month:

On the positive side, we saw unemployment drop to 5.5%. Now, that’s the best reading since February of 2013. So that’s the good news! And during that period we did see some good business confidence and consumer-confidence numbers come out.

Now, a fast track to where we are today. We’re starting to see some uncertainty and some challenges in the economy. We’ve got a choppy economy at the moment, and that’s reflected in some of the data. Business confidence has softened off a little bit, job ads growth is sluggish and consumer-confidence has certainly come off the short-term high we saw as well. So, broadly speaking, the economy really doesn’t know which direction it wants to head.

Now, a couple of other big changes have occurred in regards to the turnover of the new financial year. In New South Wales and Victoria we saw some significant changes to stamp duty and some new policies to try to get First Home Buyers into the market. These changes have occurred in many states … so check out the Fact Sheet we’ve provided for you. You will be able to work out exactly where it sits in your particular state. We did see stamp duty concessions and savings, and also some introductions for investors to actually start paying stamp duty on off-the-plan construction. So there has been quite a few changes. Again, check this out in the fact sheet that we provide alongside the link to this video.

It’s important, then, to talk also about interest rates. The reason why the RBA is not doing any of the heavy lifting is because the banks and lenders are doing it for it for them. In the past couple of months, I’ve been talking about how APRA have basically put the bank’s arm behind their back, not allowing them to grow their investor mortgage-books greater than 10% p.a.

We’ve also seen a differential between principal and interest on owner-occupied mortgages. And now we’re starting to see the introduction of “penalty interest” for owner-occupied mortgages where it’s interest only. What we need to do is track that differential. We need to think about it in terms of how it affects our personal household budget. If the differential is starting to get too big, it becomes time to start talking to your professional broker. Obviously, at Empower Wealth we want to start talking to all of our clients around their personal circumstances.

So it may be time to get a review done. I say that because as those margins continue to grow, it’s challenging to work out what is the best move for you: to stay interest-only or to move to principal and interest. Or potentially split that out into a portion of principal and interest to get the lower interest rate and a portion of interest-only. The third option you might have is to look at fixing some of your loan as well.

You can still fix in an interest-only position. That way these out of cycle changes and surprises that we’re getting from the lenders won’t affect you for the period that you are fixed.

It’s really important to remember that it’s going to be a case-by-case basis. It is still very much the case that interest-only could be the best option for you right now if you want to continue to build out your property portfolio. But for some of us who aren’t in a position to do so, or aren’t looking to add to our portfolio in the short term, it may be advantageous to move to paying off some of that principal as well.

In the past, we traditionally do that through using an offset account—so having interest-only—and using our offset account to do that. Of course, these changes by the regulators are a “catch all policy”, which means that they are implementing these changes for some of the uneducated money-managers and people who are stretching themselves to get into property in, maybe, the outa suburbs. It is catching us sophisticated money-managers, and it’s hurting us in regards to how we want to manage the money.

The fact of the matter is we’re not going to be able to change these big, macro-policies that are being introduced. This is why we’re changing our position. We need to pivot with the market. That’s why you need to speak to one of Empower Wealth’s mortgage brokers to get a sense of what you should be doing moving forward.

Thanks for watching.