Do you know what was on the wish-list for most families and investors back in the Christmas of 1989?  Lower interest rates.  That year as we pushed into the 1990’s, the standard variable home loan rate sat at an alarmingly high 17 per cent.  To put that into perspective, at that rate on a $600K loan you would be paying over $2.4 million dollars in interest alone over 30 years, compared to just under $560K at a 5% variable rate you could receive in todays climate.

When the RBA handed down a further rate cut earlier this week, we saw the cash rate reduced by a further 25 basis points to a significantly low 2.0%.  This was met with a ferocious cheer by homeowners across Australia, but what does it actually mean for investors?

Low interest rates mean less money is needed to service a mortgage and less interest is paid.  As the cash rate lowers and loan repayments decrease, this can often result in banks calculating borrowers can service ‘larger loans’ and approval for investment loans can become more achievable – which is great news for savvy investors looking to make the most of the current climate and purchase a new investment property.

Low interest rates not only mean an increase in cash-flow for the average property owner, but they can actually improve capital gains as well.

“Since the housing market reached a recent low point in May last year we have seen dwelling values rise by 6.5% based on the RP Data – Rismark combined capital city index. That equates to a gross profit of around $30,000 for the average home owner”, said Tim Lawless of RP Data when discussing the recent movements across the country.

Something that should be brought to the attention of investors is how the latest cut will affect their position in terms of negative gearing and tax breaks.  If this is a strategy you use, now is a good time to contact your accountant or financial advisor to discuss how the lower rates could affect you, and what steps you should take to protect your investment as we move closer to EOFY.

All of the above can mean now more than ever is a great time to consider a new investment for your portfolio.  To discuss current opportunities contact Hannah today.