Traditionally, low interest rates usually translate into more borrowing power but lately this has been offset by stricter Bank Credit Guidelines. Also the Banks propensity for increasing the interest rate outside of the RBA has upset the applecart so to speak. What we are seeing is the Banks making decisions that affect the economy directly by increasing interest rates in direct opposition to the RBA position. Who controls the costs of funds then if the cost to the public increases after the RBA has decreased the Banks costs? It’s interesting to speculate what could happen if the situation remains the same. What impact will it have on mortgages over the long term, say the next decade?
It would be safe to assume that investors will still be looking to buy property. The trick then will be in identifying those areas and the correct property types that suit the market environment ahead. Just like before, there will always be growth and a qualified property advisor will become far more valuable as an investor negotiates the changing market.
Perhaps the new role of property will be to provide an income stream rather than capital growth in the future. If we are relying on the rent then, it makes sense that the type of property we buy will have broad appeal to the most potential renters as possible. Does that sound like a one bedroom apartment to you? I didn’t think so.
We can safely assume that Lenders will still hold certain properties in high esteem, especially those that can be turned over quickly if things go wrong. After all, their liquidity position demands a swift end to securities that are not creating income. (i.e non payment of interest)
Property selection will become even more critical than it is now.
Should we focus on Fixed Rates? That’s a good question considering where they are now. Fixed rates still have restriction attached to them that make them unattractive for flexibility. However, if we are assuming low interest rates we can safely assume low capital growth rates so accessing equity is not that much of a priority.
The more pressing question though is whether the Banks will still provide low rates but keep the credit guidelines tight. The money supply remains the most important factor for all borrowers.
Low rates are meaningless if you can’t access the money to buy the property you want to buy.
The bottom line to low rates remains the most obvious: there is more money available from household income than there was before.
It remains to be seen whether that surplus is directed to reducing debt or spent elsewhere.
Find out more about how interest rates and how they can effect your property roadmap in our exclusive whitepaper The Interest Rate Illusion: Why Smart Investors and Interest Rates don’t mix.