RBA holds interest rate at record low 0.1 per cent at March 2021 meeting
Despite the pressure of soaring property prices, the RBA have decided to keep the official cash rate on hold at the March 2021 meeting.
In his meeting minutes, RBA Governor Philip Lowe said that lending rates for most borrowers are at record lows and housing prices across Australia have increased recently.
"Housing credit growth to owner-occupiers has picked up, but investor and business credit growth remain weak," Lowe said.
"Lending standards remain sound and it is important that they remain so in an environment of rising housing prices and low interest rates."
Canstar’s group executive of financial services Steve Mickenbecker said the Reserve Bank looks likely to find itself under property price pressure a lot sooner than it had expected.
“The Reserve Bank doesn’t expect to raise the cash rate for three years or more, but unless property prices can be slowed it will have to start looking for some way to apply the brakes," Mickenbecker said.
"First home buyers and new construction are leading the charge for property buying rather than investors, so the Reserve Bank can’t enlist APRA to target investors with lending caps as it has done previously.”
Mickenbecker said it is the perfect storm for house prices.
"On the supply side, new listings through 2020 were well below the four preceding years and total listings now are also down as stock is absorbed before or as soon as properties hit the market. Owners are loath to put a house on the market even at high current prices, fearing they will miss the boat getting back in.
Should lending be looked at?
Analysis of owner-occupier rates from RateCity.com.au and property prices from CoreLogic show mortgage repayments are $140 less a month for the average new home buyer than in the previous housing peak of October 2017.
This is because the average owner-occupier interest rate has dropped by 1.42 per cent in this time, according to the RateCity.com.au database.
RateCity.com.au research director Sally Tindall said that while the RBA is unlikely to raise rates to keep a lid on the market this year, the regulator could respond by putting caps on risky lending for some borrowers.
finder.com.au's monthly RBA Cash Rate Survey found that a little over half of respondents agree that the removal of responsible lending regulations could lead to an unstable level of household debt across the country.
Peter Boehm of CLSA Premium said, “When interest rates start to rise, it is possible a mortgage arrears time bomb will be released.”
On the other side of the argument, 45% of experts argue that the current regulations in place are too onerous and are hurting both borrower and lender.
Rich Harvey of Propertybuyer said those with the ability to borrow sustainably and with good employment history and serviceability should be able to borrow.
“Stronger borrowers create a stronger economy as they help inject investment into other sectors of economy,” Harvey said.
Nicholas Gruen of Lateral Economics said it's a real hardship for some older Australians who are income poor but asset rich.
“The regulations are pretty silly now, requiring lenders to turn down plenty of viable lending,” Gruen said.
