Will rates increase in the short term? Who knows!!!
Based on what economists and other experts are currently advising the answer to the above question is “not likely in next 12 months”, but who really knows?Whilst you can find lots of information regarding where rates are and where “experts” see them going, this weeks economic update from Westpac provided the information in a more concise manner than most and referred to some interesting data. Some of the key information this update provided was:
- indicators suggest that growth momentum in the Australian economy has slowed markedly over the last three months;
- house price inflation has slowed markedly in all major capital cities;
- between March and May nominal retail sales actually contracted by 0.50 per cent. Westpac estimate that the 6 month annualised growth rate for retail sales will slow from 6.50 per cent in March to 2 per cent in June;
- in the 3 months to March, we added 91,000 jobs, while in the last 3 months only 20,000 new jobs were added.
Further Westpac advise “not surprisingly, market pricing around the Reserve Bank’s potential action has changed markedly. In late April, before the Budget was released and before the market became aware of the lost momentum in the data, market pricing pointed to a 75 per cent probability of a rate hike by mid 2015 and a near 100 per cent probability of two rate hikes by year’s end. Now markets are pricing in a 50 per cent probability of a rate cut by mid 2015 and a zero probability of a rate hike by end of 2015.”
But having said all that, the Westpac update goes on to say “current pricing stands in sharp contrast with our own expectations of rates firmly on hold over the next 12 months, with two rate hikes in August and November next year. ”
So whilst the market has factored in a 100 per cent probability of rates being on hold till end of 2015, Westpac believes this will not be the case and there will be 2 rate rises in the second half of 2015. If the “experts” can not agree on where interest rates are heading, the basic consumer has no chance. At least there is agreement that rates should stay on hold for at least the next 12 months.
My advice is to assess what rates are available to you, understand the pros and cons of variable, fixed and split facilities and don’t forget ongoing fees (these can be significant over the term of a loan). Then make a decision based on your requirements. Don’t listen to the BBQ talk of friends as their situation and requirements will not be identical to yours. Speak to an experienced mortgage broker who can provide you with full details of all the options available. This way you can make an informed decision on what finance structure is most appropriate for you.
As always do not hesitate to contact me if you have any questions whatsoever.
To read Westpac’s economic update in full click here