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When are interest rates expected to drop?

From May 2022, the Reserve Bank of Australia (RBA) began one of the most aggressive monetary tightening periods in Australian history as it tried to curb soaring inflation.

But with several months of cash rate pauses by the RBA, many believe the tide may have turned.

So, now the question on everyone’s lips is: when will interest rates come down in Australia?

While there’s no crystal ball to predict exactly what the RBA will do next year, there is growing speculation that interest rates will come down in 2024. Let’s see what the experts are predicting.

What the Big Four banks are saying

  • Commonwealth Bank expects there to be four cash rate reductions, kicking off from March 2024 and finishing with a cash rate of 3.10% by the end of next year.
  • Westpac is banking on a more gradual decline, starting with a cash rate drop in September 2024 and another one in December to 3.60%.
  • NAB is anticipating a cash rate cut in August 2024. It anticipates the cash rate will return to around 3% by early 2025.
  • ANZ foresees the RBA pausing the cash rate for an extended period, before easing it towards the end of 2024.

It’s important to remember that the predictions above are not a guarantee. Unforeseen events like changes in global economic conditions or domestic policies can impact cash rate decisions.

What about inflation?

The RBA has been trying to get inflation back within the target range of 2-3%. In recent months, we’ve seen inflation coming down, so it appears things are on track.

According to the RBA, headline inflation is expected to decline to 4.5% by the end of 2023 and to reach 3% by mid-2025.

What you can do as a borrower

Stay informed

Make sure you keep across the news so that you are up to date with the RBA’s cash rate decisions.

Next year the RBA is changing things up, following recommendations from the review of the central bank. There will be eight cash rate decisions instead of 11. Four of the meetings will be on the first Tuesday of February, May, August and November. The other four meetings will be held midway between these meetings (dates to be confirmed).

Regularly review your home loan

With interest rates potentially on the move, it’s important to review your home loan. It’s especially true if you haven’t had it checked in the last two years.

Ask us for a home loan health check and we’ll explain how your current loan measures up in today’s mortgage environment, along with if refinancing could be right for you.

Like to talk through your options?

Maybe you’re thinking about buying a property once interest rates come down. Talk to us about how a drop in interest rates could affect your borrowing capacity and what you can do now to prepare for a property purchase in the near future.

A Pre-Tax Time Checklist for Property Investors

Sorting through heaps of receipts to figure out your allowable deductions isn’t anyone’s idea of a good time, right?

Property investment can be a rewarding venture, but it comes with its share of responsibilities, especially when tax season rolls around. To help you navigate the world of tax deductions, we’ve put together a tax checklist for property investors.

Follow these steps for a less stressful tax season:

1) Organise your documents early

Start by organising your documents now rather than later to make tax season less of a headache.

Collect all necessary paperwork, such as rental income statements, property management reports, and insurance information.

Consider digitising your receipts using various apps and tools to streamline the process.

Keep in mind the ATO still recommends you keep a backup of all your digital records.

2) Familiarise yourself with your allowable deductions

As a property investor, you’re entitled to numerous deductions. These can include advertising for tenants, council rates, water bills, maintenance costs, and depreciation on assets.

Check out the ATO’s Guide for rental property owners, Rental Properties 2022, for more insight into tax deductions for property investors.

3) Determine your assessable income

Assessable income comes from various sources, such as salary and wages, allowances, interest from bank accounts, dividends, bonuses, commissions, pensions, and rent.

Use a spreadsheet or online tool to record all your assessable income and allowable deductions for easy access by your accountant.

4) Lock in a date with your accountant

Accountants are like rockstars this time of year, so book in early to avoid disappointment. While you might consider doing your taxes yourself, enlisting the help of a tax accountant can save time and money, as they’ll know precisely which deductions you qualify for.

5) Plan for the future

You’re already diving into your finances, so why not take advantage to review your financial goals and plan for the year to come?

Consider refinancing your mortgage, consolidating debts, or you could utilise your equity to expand your property portfolio.

Whatever your investment strategy and long-term financial goals may be, we’re here to help you reach them.

Contact us today.

Understand What You Can Borrow

When you’re applying for a loan, it may be tempting just to speak to the financial institution you already bank with. The mortgage market remains highly competitive and it pays to seek alternatives.

Better still, consider using the services of a mortgage broker. A good mortgage broker has access to a panel of lenders and knows their lending application processes.

This will save you time and money and give you the best chance of getting the best possible loan when you need it. They will also be able to advise you on which loan is right for you, given your own personal circumstances.

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

Big Banks Royal Commission Jitters

Australia’s big four banks continue to manage multiple challenges including falling house prices, a regulatory backlash sparked by the royal commission, and higher funding costs.

A further challenge is that international funding costs have been creeping up in recent months – a trend likely to cost banks hundreds of millions if they are not passed on to customers.

Issues raised by the royal commission will make it much harder for major banks to raise their interest rates independently of the Reserve Bank. At some stage, however, an economic decision will need to be made.

How are you placed should interest rates rise sooner rather than later?

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

Bank limitations create opportunities for non-bank lenders

Since the GFC, bank capital levels and the number of bank regulations have skyrocketed. The unquestionable thrust of Basel III has been for banks to massively increase capital, reduce leverage, limit risk-taking behaviour, and adhere to a far more stringent set of banking regulations.

The fallout from the Royal Commission will undoubtedly see a further reduction in risk-taking appetite and yet more regulatory burden placed on the banks.

In Australia, the non-bank lending market is growing rapidly but is still relatively small, with many players fighting for scale. We expect this trend to continue.

It is important to research the market and understand your options when considering how to fund your next property purchase.

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

The Financial Landscape Has Changed Forever

It is important to understand how much you’re able to borrow prior to committing to any financial transaction. With the recent evolution of the lending landscape don’t make the mistake of assuming you will automatically obtain finance.

Seek professional advice regarding loan structure and strategy at the outset.

Changes by the Banks in relation to loan term, repayment type, satisfactory security and affordability has redefined the loan approval process.

Whether you are seeking to enter the Residential or Commercial Property Market it is critical that you seek professional advice today.

Strategic Investor Group will crunch the numbers and provide you with the best options, based on your overall financial position, and individual personal circumstances.

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

What will be the economic effect of the Banking Royal Commission?

We are already seeing the impact with individuals and company’s ability to access Bank loans becoming extremely difficult.

With the loan approval process requiring applicants to evidence the ability to service their borrowings at twice the actual interest rate, have the recent regulatory changes created a barrier for genuine borrowers.

Prudent lending principles are required, however, have the regulators gone too far, and will these actions have a flow-on effect for future economic growth?

Understand your individual position by speaking to a professional today.

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

Australia’s credit reporting system is changing. Are you prepared?

A key component lenders use when determining whether you are approved for a loan and how much you can borrow is your credit report, which sets out your previous credit applications and any defaults on your payments

Australia is currently moving to a new system of credit reporting that will help reward people who pay off their debts on time.

Following industry-wide changes, your credit report will soon show a much more comprehensive picture of your credit health and your ability to pay your debts.

Consumers who have been diligent in making their repayments on time may be able to borrow more money and at a lower interest rate than before.

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

Will you be affected by The Hayne Royal Commission?

Lenders have been tightening their lending controls and interest-only rates in response to regulatory pressure to lower record levels of household debt and boost prudential standards.

Ratings’ agency Standard and Poor’s is warning owner-occupiers are more likely than investors to struggle with the transition to principal and interest repayments, particularly for loans underwritten before 2015 when lending standards for interest-only were less strict.

If you have an Interest Only loan due for review it’s time to seek professional advice regarding your options.

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group

Interest Rates – What will 2018 & 2019 bring?

Most economists are forecasting that the Reserve Bank of Australia (RBA) will probably only make one rate rise (+25bp) to the cash rate by late 2018 while a smaller group of analysts expect interest rates to remain on hold well into 2019. Westpac’s chief economist Bill Evans has even gone as far as saying that he expects rates to remain at current levels well into 2020.

Stability from the RBA doesn’t always translate into stability for borrowers as many have already faced rising mortgage costs during the last 12 months, especially those with investment and interest-only loans.

Now’s the time to take stock and review your individual financial position.

Carl Thompson – Commercial Lending Specialist, Strategic Investor Group