The decision to keep the official interest rate on hold marks the two year anniversary of the last change to the cash rate by the RBA; the longest period of interest rate stability on record. The steady rate setting has a lot to do with stubbornly low inflation, record high household debt, a slack labour market and, more recently, falling dwelling values. Financial markets continue to expect that the cash rate will remain unchanged until at least January 2020.
While the cash rate has remained stable, mortgage rates have been tweaked, the extent to which depends on the borrower type and loan product. Over the same period of cash rate stability, the average standard variable mortgage rate has actually reduced by 5 basis points for owner occupiers and increased by 30 basis points for investors. Three years fixed rates for investors have increased by ten basis points and discounted variable rates are up 40 basis points for investment loans. Additional mortgage rate premiums are payable for borrowers who aren’t paying down their principal. Clearly the stability in the cash rate hides a deepening complexity in mortgage products brought about by the heightened level of regulation and focus from both lenders and policy makers on improving credit quality.
Despite the housing market headwinds from tighter credit conditions, the prospect of mortgage rates remaining reasonably stable should help to keep a floor under housing demand.