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As of Tuesday, the Reserve Bank Cash Rate is at 0.1%, The Reserve Bank also announced it will buy Australian Govt 3, 5 and 10 year bonds to keep them at their desired target of 0.1%.

So, if banks can be profitable with an interest rate margin of 1.8%-2.2% – then your home loan rate should be 1.9% to 2.3%.

However, with Covid loan losses that banks are having to provision for, it means that we aren’t at these low levels yet – but this is where they are going.

Of course, not all of the wholesale funding for banks can be sourced at this 0.1%. It comes from other sources e.g. bank deposits, so this is going to take a while to filter through to the everyday market. With that in mind, be patient in coming months as the market finds new levels. As you know I review every loan, with every client every 6 months.

How have banks responded?  The majors have announced fixed rate reductions for NEW customers, but what about existing loyal customers?

You guessed it – nothing, zero, zilch, $0.

They deliberately intend to price gouge loyal customers, begrudgingly giving away only what they need to short term (because that’s all fixed is – a “honeymoon rate”).

This is why it is even more important to have your loan with a lender who has a written agreement with me to reduce the rate of existing loyal customers in line with what is being offered to new.

Price loyalty? Loyalty to your bank is a one-way street, they are not (in general) loyal to you.

On house price? It is now clear that low rates are supporting house price and it is increasing again.

·       Owner occupied – if you were waiting to buy or shift in case the market fell – then that is not happening, the time is now.

·       Investment – I fully expect this segment of the market to pick up markedly – a good rental property with reliable tenants is now going to give an appealing return on your investment.

We know this because the Reserve Bank has STATED that it will keep rates at the low levels until inflation is back between 2-3% and wages are growing – this will take quite some years

If you are interested in knowing more about the 3 year Australian Bond Yield Target and it’s trend over the last 12months, click here: https://www.rba.gov.au/statistics/ags-target/

As always if you would like advice specific to your own personal circumstances, please call or email anytime, it’s what I’m here for.

Ask Alan

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