2015: Interest rates tipped to decrease

If pundits are right, home owners could benefit from an interest rate decrease in 2015. And it could happen as soon as February. Lacklustre business confidence could drive a cut of 25 basis points when the Reserve Bank of Australia meets on February 3.

Australian Chamber of Commerce and Industry Director of Economics and Industry Policy John Osborn says there are strong factors to influence a potential rate adjustment. “Business conditions are soft and worsening, so the RBA should have a rate cut on the table,” he says. “We anticipate rates will be kept on hold or a small cut will be made within the next six months.”

A downward shift in rates would provide Australia’s business community with much-needed stimulus, Osborn says. Australia enjoyed unchanged rates throughout 2014 with the last rate movement occurring in August 2013 when the RBA reduced the official cash rate by 0.25%.

Founder and executive chairman of Aussie John Symond tips the bank will do anything but raise rates next month.  “I suspect the RBA will either keep the current cash rate at its historic low of 2.5% or prove the speculation and drop it by 0.25%, which will precipitate further falls in mortgage rates,” he says.

“I believe it will make either move on the basis that economic conditions in Australia and the rest of the world remain very mixed, with local business confidence flat.” If predictions of a rate fall are correct, home owners can expect to continue enjoying competitive home loan rates well into 2015, Symond says.

“We are in one of, if not the, most competitive mortgage markets I’ve seen since launching Aussie 23 years ago,” he says. “Lenders have been continuing their moves toward lower interest rates despite no cash rate changes in 16 months, and there is red-hot competition between lenders for a slice of the home loan pie.

“I expect interest rates will remain very competitive during 2015 and beyond, as there are many players keen to lift their market share of the home loan sector.” A market full of aggressive lenders means banks are more willing to negotiate with customers rather than losing them to competitors.

Record-low rates also give savvy home owners an opportunity to fix loans, but Symonds says there’s still time to wait for rates to fall further before doing this. “Fixed rates give certainty about repayments, ideal for tight budgets, while also protecting against possible rate rises in the years ahead,” he says. “Once it’s clear that we’re at the bottom of the rate changes, which I’m not sure we are at quite yet, then fixing in one of the incredibly low rates available would be my next move.”

Source: www.realestate.com.au