RBA: Latest financial review highlights impact of low cash rate

By the resi financial blog team, 21 October 2013

Financial review October 2013

The low cash rate has been big news in the housing and home loan circles for a few months now, due to the historically low level it has reached and the effects this has on interest rates across the nation.

However, the latest Financial Stability Review (FSR) released by the Reserve Bank of Australia (RBA) has highlighted some of the more specific trends to occur in the wake of lower interest rates and increasing consumer confidence.

For example, it appears that many households are paying back their debts much faster than required, which is contributing to a low level of overall financial concern within the market.

According to the report, around half the households surveyed decided against reducing their repayment amounts in the wake of reduced rates, which has contributed to the growing rate of repayment across the country.

However, the nation is still resting at relatively high levels of borrowing, which suggests an increasing faith in the housing boom and a confidence that it will continue into the foreseeable future. 

Fixed rate home loans have experienced a sharp increase in approval rates since the cash rate was lowered. While they contributed to 9 per cent of home loans in July 2012, this rapidly grew to 19 per cent in July this year.

An interesting point to notice is that during the first half of 2013, home loans classified as lo doc made up less than one per cent of the country's overall lending approval rates.

Furthermore, this seems to be contributing to households taking riskier investment moves with their self managed superannuation funds.

Another point raised in the review was the potential for self managed superannuation funds to exacerbate the price of property, with concerns that this would increase consumer protection concerns heading into the future.

Categories: Home Loans, Property Investment