The Reserve Bank of Australia (RBA) has cut the Australian cash rate to a new low in June, so it’s important to look at what this could mean for Australian expat property investors and those looking to buy their own home. The RBA kept the cash rate at 1.5% for just shy of 3 years, and have finally reduced this by 0.25% to a record low rate of 1.25%. The softening global growth rates, slightly weaker economic growth outlook for Australia and subdued inflation has meant that expectations are that we may see at least one further rate cut within 12 months, and possibly two.
There are two key ways that this impact Australian expat property investors, as well as those looking to repatriate and purchase their own home. The first of these is the impact on the strength of the Australian dollar (AUD) relative to other global currencies, and the second is the overall impact on home loan and investor loan rates. Let’s explore these one at a time.
How will the AUD be impacted relative to other global currencies?
If the RBA does decide to continue to cut the cash rate, then based on the historical trend, it is likely that the AUD will remain soft and potentially decline further. As is illustrated in the chart below, the AUD has declined over the previous few years against most major currencies, particularly the US Dollar (USD). This could be particularly valuable for those Australian expats living and working abroad and receiving their salary in currencies other than the AUD. We explore this further in our recent article here.
How will interest rates for borrowers react to a further cash rate reduction?
Interest rates for borrowers are at record low levels in Australia, which is great news both for home-owners and Australian property investors. This is reflected in the chart below:
Some lenders in Australia have reduced their owner-occupier home loan rates to 3% and below as competition increases. We are also seeing fixed interest rates for Australian expats looking to invest in property down under in the mid to high 3’s. If the RBA does cut the cash rate further, then it is likely that interest rates will decline further for borrowers.
As cash rates remain low, it’s now more important than ever to do your homework and ensure that you are prepared for an eventual increase over time. The low AUD and reducing borrower rates will likely ensure that the land down under remains an attractive destination for Australian expats looking for a home for their investments.
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