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Cash rate holds firm as housing market moderates

The cash rate has been a big focus for property investors and first home buyers alike in recent months, as the country has expressed concerns over the apparent unaffordability of capital city housing markets. Sydney and Melbourne have come under particular scrutiny, and for good reason: CoreLogic RP Data has recorded their values seeing almost 11 per cent increases over the 12 months to January 2016. 

While current investors have celebrated these gains, there are some who call these increases unsustainable. New home buyers and budding property developers have been locked out of the market – and the Reserve Bank of Australia (RBA) has taken notice. Having dropped the official cash rate to 2.0 per cent from 2.25 per cent in May last year, the RBA hoped this influence would turn borrowing power calculators in mortgagers' favour, keeping interest rates low and housing sales high.

The official cash rate is just one of the tools used by the RBA to control borrowing.The official cash rate is just one of the tools used by the RBA to control borrowing.

An encouraging success

Apparently it is working, as the latest meeting of the RBA has resulted in the cash rate remaining steady at 2.0 per cent. The RBA validated their position by stating "low interest rates are supporting demand, while regulatory measures are working to emphasise prudent lending standards and so to contain risks in the housing market". The moderated growth seen in the largest capital cities was also mentioned as a sign that the housing market is slowly cooling to a more reasonable level: just as intended, as CoreLogic Head of Research Tim Lawless describes.

"The housing market is playing out exactly as the RBA probably would have hoped: losing steam without a collapse in values."

Falling with style

"The housing market is playing out exactly as the RBA probably would have hoped: losing steam without a collapse in values."

This "collapse in values" would have been devastating for not only the real estate industry and the capital cities, but also for Australia as a whole. According to the Property Council, the property industry is the single largest contributor to Australian GDP, the second largest employer, and 18 million Australians have a stake in property via investment in their super funds. It isn't just about investors: everyone should be concerned about the health of Aussie real estate.

However, the moderation and ensuing increase in affordability has been damaged somewhat by an unexpected mortgage interest rise from some banks. The Housing Industry of Australia Senior Economist Shane Garrett describes these increases as "a significant blow to the property industry", and that the borrowing environment is now in "its least favourable position in over three years".

Don't despair, however. If you're looking for a loan, these higher-rated banks are not your only option. Speak to a mortgage broker today to find the right loan for your needs.

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