"Optimism is growing for a rate cut, so what can investors do to get ahead of the herd?" - Matthew Lapish, Senior Investment AnalystAfter announcing it had decided to keep the cash rate on hold at 4.35% for August, the Reserve Bank of Australia (RBA) updated its forecasts.
Right now, the RBA expects inflation, now at 3.8%, to be in the 2%-3% target range by the end of next year.
While RBA governor Michelle Bullock suggested not expecting an interest rate cut before Christmas, the money markets are suggesting rates may fall sooner.
Economists at Australia's big four banks predict that we've seen the peak of the most recent round of rate rises, with rate cuts expected to happen as early as November this year.
CommBank predicts that the first cut is likely to occur around November, with rates eventually dropping to around 3.10% by the end of 2025.
ANZ predicts the first cuts will start a little later, around February of next year, with rates dropping to a level of around 3.60% by the end of 2025.
Meanwhile, NAB economists predict the first cut to occur around May of 2025, with rates reducing to 3.60% by the end of 2025.
Incoming interest rate cuts. What does this mean for investors?
An impending cash rate cut by the RBA can have several significant implications for Australian property investors, both positive and negative. So should you invest in Australian property now or continue to wait?
Positive impacts of lower interest rates for property investors
- Lower mortgage rates: A cash rate cut typically leads to lower interest rates on mortgages which reduces the cost of borrowing, making it cheaper for property investors to finance new purchases or refinance existing loans.
- Increased property demand: Lower borrowing costs can increase demand for property as more people are able to afford mortgages. This can lead to higher property prices and increased capital gains for investors.
- Higher rental yields: With lower interest rates, the cost of servicing a mortgage decreases, potentially leading to higher net rental yields. This is especially beneficial for investors who rely on rental income.
- Improved cash flow: Reduced mortgage repayments can improve cash flow for property investors, providing more funds for maintenance, renovations, or additional investments.
- Property value appreciation: Increased demand for property often results in higher property values. Investors can benefit from capital appreciation over time.
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