RESERVE BANK KEEPS RATES STEADY AT 2.25%

There were no post-Easter chocolates for borrowers today, with the Reserve Bank keeping rates on hold for the second month in a row.

While experts are confident of another rate cut this year, most predicted the RBA to hold steady in April.

The decision to hold the cash rate steady at a record 2.25% keeps the way clear for a possible cut in the first week of May, just before Treasurer Joe Hockey hands down his second budget on May 12.

“At today’s meeting the Board judged that it was appropriate to hold interest rates steady for the time being,” Reserve Bank Governor Glenn Stevens says.

“Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target. The Board will continue to assess the case for such action at forthcoming meetings.”

Stevens notes the US economy continues to strengthen as China’s economic growth slows and says globally, financial conditions are accommodative.

“In Australia the available information suggests that growth is continuing at a below-trend pace, with overall domestic demand growth quite weak as business capital expenditure falls.

“As a result, the unemployment rate has gradually moved higher over the past year. The economy is likely to be operating with a degree of spare capacity for some time yet. With growth in labour costs subdued, it appears likely that inflation will remain consistent with the target over the next one to two years, even with a lower exchange rate.”

Borrowers Still Winning With Low Rates

Despite no movement from the RBA, homeowners are still experiencing favourable borrowing conditions, finder.com.au Money Expert Michelle Hutchison says.

“There is still a huge difference in what lenders are offering, and on the pointy end it is very competitive. For instance, variable home loans start from 4.23%. Lenders are also competitive and keen to sign up new customers so it’s worth doing your research, find out how your home loan compares to the rest of the market, ask your lender for a discount or switch to a cheaper deal.”

Record low rates are good news for borrowers

Hutchison says the RBA’s hold on rates is also good news for first home buyers.

“Many first home buyers have been struggling since before the cash rate began to fall in 2011. In fact, the latest Australian Bureau of Statistics data analysed by finder.com.au shows that January saw just 5,963 first home buyer home loans financed, the lowest level since January 2011,” she says.

“The finder.com.au Reserve Bank Survey in December 2014 showed the majority of experts are expecting property prices to rise as a result of rate cuts this year so first home buyers can breathe a sigh of relief, for now.

“The past year saw the median property price increase by 7.4 percent to $559,000 (CoreLogic RP Data). If first home buyers have to borrow over $38,000 more for an average property – from $520,484 to $559,000 – the higher property price would outweigh the last rate cut. In fact, even if there was another cash rate cut, it won’t outweigh the extra cost in monthly repayments if you paid $38,000 more for a property.”

Home prices continue to rise

It seems nothing can stop the momentum in the property market, with home values across Australia’s capital cities increasing by 1.4% last month.

A surging Sydney market, which saw home values increase by 3%, was behind the strong result according to the CoreLogic RP Data Home Value Index.

However CoreLogic RP Data head of research Tim Lawless points out that “although value growth has started 2015 on a strong note, the annual rate of growth has moderated back to 7.4 per cent, which is the slowest annual growth rate since September 2013.”

Capital city home values increased 1.4% last month

Sydney was the best performing capital city for capital growth with values rising 5.8% for the quarter and 13.9% over the year. It is the only capital city to maintain growth values in double digits.

Melbourne is the next best performing capital with an annual capital growth rate of 5.6%, which the remaining capitals recorded annual growth of less than 3%. Values have declined in Perth, Darwin and Hobart during the past 12 months, the data shows.

“Over the current growth phase, Sydney dwelling values have increased by 38.8 per cent with Melbourne second strongest at 23.6 per cent. On the other hand, total dwelling value growth over the current cycle has been less than 10 per cent in Adelaide, Hobart and Canberra,” Lawless says.

“Combined capital city home values have increased by 3.0 per cent over the first quarter of 2015. While that rate of growth is strong it is important to note that it is lower than the 3.5 per cent increase in home values over the first quarter of 2014.”