Rates, house prices and the Royal Commission: the year that was

It’s been a year of peaks and troughs for the Australian property market and today’s decision by the RBA to keep rates on hold at 1.50% is borne of a range of factors likely to shape the outcome of 2018.

If, on the first Tuesday of each month, you wait expectantly to hear the outcome of the Reserve Bank’s monthly board meeting, you, and plenty of others around the country, were likely responsible for that collective sigh of relief that followed the central bank’s decision to leave rates on hold for the 16th time in as many months. In its last official rate announcement for 2017, the Reserve Bank of Australia chose to leave rates on hold at 1.50%. This number no longer seems out of the ordinary, but it was only August last year when the central bank set the record low rate – which it has now kept for 16 months consecutively. It’s been a year of peaks and troughs for the Australian property market and this decision is borne of a range of factors that will no doubt continue to affect the RBA’s interest rate decisions in 2018. The housing market for one went up and up, before flattening in the latter half of this year and even falling in Sydney, which fuels almost half of Australia’s economic growth, according to new research released today by SGS Economics & Planning (SGS). Aside from housing prices, another water cooler topic this month (if you work in financial services, at least) is the government’s decision to lead a Royal Commission into the financial services industries, which includes banking, superannuation and insurance. This is to essentially uncover “any conduct, practices, behaviour or business activity by a financial services entity that falls below community standards and expectations” – which means it’s likely to delve into banks’ decisions to increase interest rates out of cycle with the Reserve Bank. What a year! To help you make sense of some of the big issues of 2017, we’ve chosen a few of what we think are the most pressing questions and, with some help from UNO’s chief financial officer, Jason Azzopardi, answered them for you.

Why have rates been kept low all year?

Wage growth remains low in most countries and inflation is likely to remain low for some time in Australia, so the RBA’s decision is to support the Australian economy until GDP growth picks up. “Inflation figures in November indicated price weakness except for rising electricity and gas prices, leading to the inflation rate remaining below the RBA target of 2-3%,” explains Azzopardi. Reserve Bank governor Philip Lowe said in November that economic conditions were not ripe for rate rises and forecast GDP will average around 3% over the next few years.

Will rates go up in 2018?

The general consensus is that the RBA may choose to leave rates at 1.50% throughout 2018 and change them in late 2018 or 2019. Azzopardi believes rates will likely remain flat for some time, with markets predicting a rate rise of 25 basis points in latter 2018, while The Sydney Morning Herald business journalist Elizabeth Knight is betting on no rate rises in 2018 and a rise in the latter half of 2019 – if at all. “Over the past six months economists have been revising their predictions – pushing the time frame for rate increases out by another six months or more,” she writes. “Now around 70 per cent of them are looking for rates to move up in the middle of next year.” How much can I borrow?Use UNO's calculator to estimate your borrowing capacity. Calculate Now

Has the housing market really cooled?

House prices have been static for two months at a national level, but fell in Sydney in September and October. Azzopardi says the low interest rate environment can be a stimulus for prices and says Melbourne has scope for continued growth next year. UBS and Westpac economists believe house prices are set to ease as the growth in mortgage lending unwinds, The Australian Financial Review reported yesterday. “The catch-22 for housing bubbles is that the flow of new mortgages is the main determinant of house prices, and for them to continue rising, the rate of growth of new mortgages has to keep rising,” academic economist Steve Keen told the AFR. “We now seem to be approaching the limit that households can bear, so mortgage growth is slowing down and new mortgage growth is negative … There’s a link between a change in new mortgages and change in the price level. So a fall in the level of new mortgages causes a fall in prices.”

What can we expect fromlenders?

At UNO, we’re starting to see a trend among lenders decreasing their fixed rates, particularly when it comes to 3-year fixed rate products. This is indication that banks believe interest rates are going to remain low in the short term, says Azzopardi. St George decreased its basic variable product by 0.1% for owner occupied principal and interest (P&I) loans to 3.68% p.a. (comparison rate 3.69% p.a.*) and are offering discounts on 2- and 3-year fixed loans, while Bankwest dropped its 2-year P&I ‘Complete Fixed’ home loan product for investors, from 4.18% p.a. to 3.98% p.a (comparison rate 4.89% p.a.*). At UNO, we’ve seen increased scrutiny of home loan applications among our panel of 22 lenders with new requirements such as stronger focus on expenditure and credit cards. The Commonwealth Bank has just outlined to brokers that it’s about to launch a major overhaul of its lending policies in a bid to “ensure the long-term sustainability of the property market”. It is introducing credit policy changes for certain property types in selected postcodes from December 4. How much can I save by refinancing?Use UNO's calculator to estimate your savings. Calculate Savings

What’s the banking royal commission about?

Certainly the biggest indication of a tightening on the financial sector is the government’s banking royal commission, lead by former High Court Judge Kenneth Hayne. Hayne will commence public hearings in February and must submit an interim report no later than September, with the final report due by February 1, 2019. One area for examination is whether banks are falling short of “community standards and expectations”, which may look at banks’ decisions to increase interest rates out of cycle with the Reserve Bank – or fail to pass on cuts in full, which The Australian Financial Review says are among the biggest causes of public outrage. 2018 is sure to be an interesting year. Book in a quick call with our customer care team.*Warning: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rate is calculated on the basis of a loan of $150,000 over a term of 25 years. Book a call in with UNO

5 stars for our service reviews from clients

Book Call Now

UNO home loans

Try Plans, by UNO
Mortgage calculators completely reimagined
Get Started
Considering a purchase or refinance?

Try Plans by UNO

Mortgage calculators completely reimagined
Get Started
☎️ 🚫 No cold call promise

Related Articles

TESTIMONIALS

What our customers are saying

Mark
January 10, 2025
5 stars for our service reviews from clients
We were recently approved for finance with Scott Wilkinson at UNO Home Loams. Scott was friendly and professional the whole way through the process and obtained the finance for us when many others had said they wouldn’t be able to. Thanks to Scott we were able to get everything done and settled in quite a short amount of time considering the complexity of the deal. We knew where we stood the whole way and no details were hidden or forgotten . Thanks Scott you are highly recommended by myself and my Wife.
Read more
Lise Ioane
December 30, 2024
5 stars for our service reviews from clients
Paul Davey and the team were amazing! As Kiwi's who have moved to Australia I wanted to use someone back home or who had experience with helping FHB in Australia. Paul answered all of our questions in a timely manner and helped us to secure the home loan and move into our new home. We had a few meetings with Paul and he did all the the work so us, we just filled in the required paperwork and he and the team did the rest. We dealt with Dalby for the last part of the process and he was also amazing! Highly recommend Paul and the team! Thanks Paul, Dalby and the team and UNO Home Loans.
Read more
Neil Venkataramiah
December 20, 2024
5 stars for our service reviews from clients
Mike Parsons: Working with Mike was amazing. My wife and I were a couple from Sydney that had a 7 year stint overseas. On moving back, our loan had gone from Interest Only to Principal and Interest. The challenge: to get 2 recently re-patriated Aussies on an Interest Only loan. With only 1 year of Oz financials. And with income from an overseas company. We had equity in our property, but the ability to service was the issue. A very tough brief. Step in Mike. He contacted all his lenders, knowing that this was a unique situation. He never let up and followed through with calls and whatsapps at every stage of the process. We simply could not have got our Interest Only loan if it wasn’t for Mike. I highly recommend Mike for any loan or re-finance that you’re looking at. His attention to detail and ability to find creative solutions is second to none. And most importantly - he's a good guy that will guide you through the whole process in what can be a stressful time. Steph and Neil
Read more
Philip Smith
December 20, 2024
5 stars for our service reviews from clients
Mike Parsons provided my wife and I outstanding service for our home loan. I have never dealt with someone who is so helpful and goes the extra mile and provides such excellent service the way Mike did. Highly recommend Mike as your broker for all investment/home loans you won’t be disappointed.
Read more
Gemma Smith
December 19, 2024
5 stars for our service reviews from clients
Mike Parsons was truly amazing when he organized our home loan. He offered service that far exceeded my expectations. He was on top of everything and was very organised. He has a true “do it now” attitude and ensured everything ran smoothly. He went above and beyond to make sure everything was in place. He was always contactable (even when he was on holidays!). Keeping us up to date at every step and his communication was great! Would VERY HIGHLY RECOMMEND Mike!
Read more
Stéphane Aumont
December 19, 2024
5 stars for our service reviews from clients
Highly recommend Mike - great service, very responsive and helped us through the whole process from product selection, approval all the way to settlement. Mike is supported by a great team at UNO
Read more
David Thorn
December 17, 2024
5 stars for our service reviews from clients
I had a fantastic experience with UNO Home Loans. I want to personally recognise the work of Mike Parsons from UNO. Mike went above and beyond in helping me navigate and select a lender his attention to detail, knowledge of the Market, Excellent Communication skills matched by a patient and friendly personality made the whole process simple and painless. Thanks Mike and thanks UNO
Read more
Sean O'Neill
November 14, 2024
5 stars for our service reviews from clients
We received excellent service and a tailored solution to our home loan requirements from Uno. Paul kept us informed at all milestone stages and throughout the process he demonstrated a ‘can do’ attitude that ultimately allowed us to get over the line and meet our deadline. We’re most grateful and very impressed. Highly recommend
Read more
Kathryn Cretney
November 14, 2024
5 stars for our service reviews from clients
Paul helped us from day one before we even arrived in Australia so we knew exactly what we needed to prepare. He’s got a tonne of knowledge and was really lovely and supportive to deal with. Helpful and easy going. Would highly recommend - now in our first Aussie home and Paul made the process all very easy!
Read more
Crush Huston
November 8, 2024
5 stars for our service reviews from clients
Paul is an amazing broker. Communicative, responsive and knows his stuff! Highly recommend
Read more
Amanda Pearce
November 7, 2024
5 stars for our service reviews from clients
After just four months in Australia, our New Zealand home sold, prompting us to stop renting and invest locally. We found Paul through a Kiwi Facebook group, and his exceptional service exceeded our expectations. From initial contact, Paul provided clear explanations, friendly communication, and prompt responses to our queries, making our mortgage process remarkably smooth. We highly recommend him.
Read more
Dom Saric
November 3, 2024
5 stars for our service reviews from clients
Mike Parsons went above and beyond to ensure that our refinancing journey was painless and successful. He was communicative, accessible (even working while on holidays!), and his knowledge of the systems at play meant that he picked up on things that other brokers missed. Would 100% recommend Mike, and will definitely be back next time we need a broker.
Read more