Expect lending to surge as RBA confirms no rate rise for three years
The Reserve Bank governor Philip Lowe does not expect to be increasing the cash rate for at least three years potentially providing mortgage borrowers with greater certainty.
In a speech on Thursday, Lowe said that the central bank will not be increasing the cash rate until actual inflation is sustainably within the target range.
“On our current outlook for the economy – which we will update in early November – this is still some years away,” he said.
“So, we do not expect to be increasing the cash rate for at least three years.”
He also signalled that the bank could cut rates in November.
With the Reserve Bank announcing no change to the cash rate at its last board meeting, CoreLogic head of research Tim Lawless said in a note that prospective home buyers are likely to feel more confident in making high commitment purchasing decisions, such as property.
“Government incentives, such as the first home loan deposit guarantee, the first home buyers grant and the HomeBuilder grant, along with state based incentives such as stamp duty discounts, have supported greater levels of participation from first home buyers, while existing mortgage holders have been shopping around for the best mortgage rates fuelling a surge in refinancing,” he said.
In fact, recent data from Australia’s largest mortgage aggregator revealed a surge in new home lending, driven by first home buyers.
Broader industry data also revealed a strong uptick in lending, with Australian Bureau Statistics revealing a surge in refinancing.
In his speech, Lowe also provided an assessment of how people were spending and saving.
Lowe noted that the June quarter, when fears about the pandemic were at their peak, the household saving rate surged to 20 per cent, the highest in almost 50 years.
Those with mortgages used extra savings and some of the superannuation withdrawals to increase their balances in their offset accounts while others have paid down their principal directly, according to Lowe.
In fact, offset balances were up 10 per cent in March.
“Combined, all forms of mortgage payments – including the additional balances in offset accounts – reached a record high over recent months, despite repayments being deferred on around 8 per cent of housing loans,” Lowe said.
The key to this is confidence in the health situation and the future state of the economy
The shift toward greater savings and reduced spending was as a result of consumer uncertainty and government support packages.
Going forward Lowe, said that confidence will be key in driving people to spend and businesses to invest.
“The key to this is confidence in the health situation and the future state of the economy.
“If people are nervous about the health situation or their job prospects, they are likely to sit on their savings. On the other hand, if they are confident that the virus can be contained and that they will have a job, they will be more willing to spend.”
Here he said that it was crucial that health policy around quarantine measures and COVID-19 tracing remained robust.
“These are essential, not only to open up our economy successfully but to also build the confidence that is required for people to spend and invest.”
He also acknowledged the record borrowing levels announced in the budget were “quite a change” for “a country that became used to low budget deficits and low levels of public debt”.
But added that “it is a change that is entirely manageable and affordable, and it is the right thing to do in the national interest”.