Credit Easing -The Pendulum is swinging back!

The latest news from both the RBA as well as APRA is clearly indicating that the pendulum for the easing of lending is swinging back.

After the RBA held the interest rate at the current 1.5% for now 33 months , since 3rd August 2016, it is clear that interest rate reductions are going to come. And that is not one, but two.
General expectation is that after holding the interest rate in May due to the election, that a 0.25% reduction is going to be announced at the June Meeting on 4th June 2019.

It is also clear that another interest rate cut is going to follow not much later after that. Clear indication of such is the announcement from Australia’s central bank chief after the release of the minutes of the May RBA policy meeting, where he said that recently downgraded growth forecasts would have been even lower if they hadn’t incorporated current market forecasts for two rate cuts.

It is also noteworthy that on Tuesday regulators proposed to loosen the lending restrictions first announced in December 2014.

At that time banks were required to assess all home loans against a floor of 7%, whereby most lenders typically added 0.25% to such, making it a threshold of 7.25%.

The gap between this and actual current lending rates is just too big, as also confirmed by APRA chairman Wayne Byres. Hence APRA is now proposing to withdraw this and to allow Authorized Deposit-Taking Institutions (ADI’s) to “review and set their own minimum interest rate floor for use in serviceability assessments”.

Noteworthy is also that in an attempt to rebound lending growth, APRA has been quick in supporting the banking sector, removing its 10% growth cap on investor lending and 30% limit on interest-only lending.

The resultant drastic reduction in lending that came out of the implementation of these measures meant that lending decreased dramatically, the banks were just loosing too much business, the economy slowed down. With underlying inflation now at about 1.4%, the equal lowest on record and well below the RBA’s target range of 2-3%, it is clear that the Pendulum is swinging back – Lending will become much easier and cheaper.

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Property Friends is a specialist Property Investment Strategist that provides solutions for people aspiring to financial independence, choices in retirement, or leaving a legacy. (03) 9758 5331

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