What Does The Rate Cut Mean?

Print This Post Print This Post

As predicted the Reserve Bank of Australia have cut interest rates to an all-time low. The current cash rate is 2.25%. The rate has now been on a steady decline since November 2011 when we had the first drop of .25% drop in 25 months. During the Global Financial Crisis the rates only got as low as 3.00% in April 2009.

The current cash rate is great news for investors. If the ‘Big Banks’ pass on the rate in full (at the time of print CBA and Westpac had agreed to) this would mean variable rates will be at a level we have never seen before.

Case Study
3 year old home in an outer suburb of Melbourne.
Purchase Price $400,000.
Stamp Duty + costs $21,939
Interest Rate 4.70%
Loan amount $421,939
Borrowing 26% of the total loan value in equity from your current home will save lenders mortgage insurance.

Loan Repayment $19,800
Expenses $4000 (management fees, rates, maintenance, etc.)
Rental income $18200
Depreciation $15,000 in the first year
Gross rental yield – 4.55%

With the current rates, purchasing a modern established home in the right area is going to give you more rent per month than your interest only payment based on the numbers above. Apart from the benefit of higher rent from a modern home it will also give you fantastic depreciation options which can be discussed with your accountant.

Also Self-Funded Retirees and people with cash at bank will be flooding the property market as they can get 4.5% yield and capital growth as opposed to the banks offering 2-2.5% yield with no capital growth.

With the current rate cuts at their lowest point in history and housing prices at the level they are it is now the best time investors have seen in the market, so make the jump.

Call us now to discuss your next property purchase.

Courtney Thursfield
Director of Property Management
JPP Property Management

Share this Market Comment

About the author

Courtney has an advanced diploma in hospitality management and she also has Certificate IV in Business Studies (Real Estate). She is a fully licensed Real Estate Agent and an accredited Buyers Advocate with the REIV. Courtney is a sensational asset to the JPP Team bringing a level of enthusiasm second to none. Her organisational skills are the envy of her peers. When not working, her interests include supporting the Collingwood Football Club and movies.