Dee Why / Collaroy Blog

The Reserve Bank of Australia (RBA) once again left the official cash rate on hold at 1.5%. It is now 19 months since Australia’s central bank has changed gears on monetary policy. The last move was a 0.25% cut in August 2016.

What is the cash rate?

Every first Tuesday of the month, apart from January, the RBA board meets to determine the cash rate. And for the past ten months, they’ve decided to do nothing. Sounds like a great job, right?

The truth is the cash rate, also called the ‘official cash rate,’ is the interest rate the commercial banks such as Commonwealth Bank or Westpac must pay for borrowing money from the central bank overnight.

At the same time, the official cash rate also impacts the interest rates the banks pay each other. The fact is that whether it's a mortgage, car loan or credit card payment, there will be some level of inter-bank business.

Why aren’t I paying 1.5% for my home loan?

If you’re wondering why you're not paying a 1.5% interest rate on your mortgage, it's because the lenders need to make some money. They do this by charging a margin on top of the cash rate, which means you might be paying 4% for a variable rate home loan instead of 1.5%.

If you’re paying more than 5% for a variable rate loan, you’d be well advised to talk to a mortgage professional such as Our Broker for a better mortgage arrangement.

How do interest rates impact real estate values?

When interest rates are low, more buyers and investors will enter the market, as was the case between 2012 and the middle of 2017.

The rub is that the banking regulator APRA imposed measures last year that appear to have taken the heat out of our current lower interest rate environment. Last April, APRA capped interest-only loans to 30% for new loans. This measure impacted the market as interest-only loans are a popular lending platform for investors.  

Consequently, the latest CoreLogic hedonic home value index result showed that Sydney dwelling values fell in January by 0.9%, which many commentators are attributing in part to the APRA measures. However, our view remains that this trend is a short-term blip for Northern Beaches real estate, particularly given the alternative investment classes available. 

For example, the benchmark S&P/ASX200 share market index dropped 192.9 points, or 3.2% this week. This fall wiped out more than three months of share market gains in a single day. And don’t get us started on the risks involved with cryptocurrencies.

In the current volatile investment environment, a quality, well-located property on Sydney’s famous Northern Beaches continues to present a safer wealth creation vehicle for owner-occupiers and investors. 

If you’re considering selling a property on the Northern Beaches, contact Raine & Horne Dee Why/ Collaroy on (02) 9971 9000 to discuss your options or to seek an appraisal.