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October interest rate and lending environment update

The October meeting of the Reserve Bank of Australia (RBA) ushers in a new era for the Australian central bank with Philip Lowe taking the helm from retiring governor Glenn Stevens. Philip Lowe has been second in charge at the RBA. During this month’s meeting, the RBA has decided to leave rates at their historic low of 1.5%.

While inflation is low, growth was sufficiently strong for the RBA to believe that further monetary stimulus wasn’t required. Further, the RBA noted that investment lending has slowed, as has the rate of property price increases, which underpins its stance of keeping rates low. The RBA didn’t want to stimulate the property market further with another rate cut, however did note that its current stance does allow for further cuts should there be a need in the future. It noted that other risks to the economy were around the value of the Australian Dollar.

The RBA is also pleased with the tighter credit controls that have been put in place, citing that as one of the factors for slower growth in lending. This growth being, however, of potentially better quality than previous periods of credit expansion.

Banks are currently being very competitive for quality loans, with home loan rates as low as 3.6% for owner-occupiers borrowing below 80% of the value of their properties. We’re seeing a number of people on 4.5% or even 5% for their owner-occupier home loans gain considerable savings by refinancing at the moment. There have not been any recent material changes to credit policy which is producing consistency in approvals.

There have not been any substantial changes to either Self-Managed Superannuation Fund (SMSF) loans or business and commercial lending, all providing consistent approvals for borrowers. With consistent credit rules, borrowers can plan their financing with greater assurance that they will get approval.

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