Does the cash rate announcement change your investment?
November 5, 2014 / Written by Rich Harvey
It's the start of November, which means the Reserve Bank of Australia (RBA) are releasing their Official Cash Rate (OCR) monthly update this week. While it doesn't strictly dictate the interest rates set out by lenders, its importance as a guideline cannot be overlooked by anyone thinking about borrowing for investment property in Sydney.
At their November 4 meeting, the RBA decided to leave the cash rate unchanged at 2.5 per cent. It has now been sitting at this level since August 2013, or for 15 months.
And so the ongoing stability continues - but what does it mean for investors?
Benefits for wider economy
If lenders follow the RBA's lead, it should see stable borrowing conditions for the near future. In his monthly address, RBA Governor Glenn Stevens noted that "[i]nvestors continue to look for higher returns in response to late instruments," adding that investment in dwellings has seen mid-range credit growth for Australia.
While previous RBA releases have acknowledged the crowded investment market, the Housing Industry Association (HIA) has noted that low interest rates tend to bring out the best in many areas of the economy.
"Super low interest rates have unleashed substantial pent-up demand for new housing to the benefit of many parts of Australia's domestic economy beyond residential construction," said Harley Dale, senior economist for the HIA.
As the RBA and the CommSec State of the States report noted, resource industries are seeing a decline in construction, and home building has gathered speed to compensate.
If you want to buy property in Australia in this low interest rate environment, it can have great flow-on effects for other aspects of the economy.
Benefits for investors
Mr Stevens concluded his report by saying that "the most prudent course is likely to be a period of stability in interest rates", which is music to the ears of budding mortgage applicants. Of course, the OCR staying firm means you can invest more confidently and ideally pay less interest on your investment loan for a Sydney property.
But it shouldn't be enough to get a loan with low interest - you should be on the lookout to put that borrowing to its most suitable use, and find property that will reap more rewards for you.
This means buying into property that will appreciate in value over time, and produce the rental yields appropriate for your plans - especially if you want to own positively geared property.
To get trustworthy and up-to-date information on Sydney real estate, it's worth contacting a buyers' agent. They have detailed knowledge of the market and how it changes - indispensable information to have on your side when you invest in a low interest situation.