Yesterday’s Interest Rate Cut

In the aftermath of yesterdays rate cut, we now wait to see how the banks will react and how much of the 25 points they will pass on. ANZ took an early opportunity to pass it on in full but disappointingly the CBA passed on only 20 points moments later.

It’ll be interesting to observe the market’s reaction and fixed-rate offerings. 3-year fixed rates have been under 4% for the last 2 weeks, but the language used by the Governor yesterday (hinting the cutting frenzy may be over) may tilt the yield curve differently. Fancy the AUD dropping at 2.30 pm (as it should) but then shooting back up a few minutes later once the traders in town had a chance to read the full statement.

Notwithstanding the concern of adding fuel to the fire of Sydney housing prices, lower commodity prices are just such a drag on our economy that the weak business investment would undoubtedly see a hike in unemployment. Rate cuts are great for borrowers but do signal worrying times.

The word on the street is that APRA is about to do their bit to close in on flexible banking practices to reign in investment property lending as we know it. Whilst most at iChoice have well protected their potential future tax effectiveness, we can reveal that 2 lenders have given us pre-warning around the future of interest-only loans against homes. Calculations used by the banks to determine our capacity to service commitments will also change, as will the ease of unlocking equity.

Right now is a unique opportunity for investors to review their financial structure. Expected announcements by APRA and the Federal Government around Super tax thresholds and negative gearing mean our team is on our toes to best protect our investor clients. Let’s just hope it’s not too much at once… remember the Vendor Tax in 2004! Investors don’t like the goalposts being moved.

And if you want your very own rate cut, keep in mind that most new iChoice clients knock off over 0.25% immediately, just by letting us negotiate on their behalf.

It’s May already, so for those investors who have experienced a recent Capital Gain or for whatever reason expect to earn less income next year, it may be worth considering locking in a 1-year rate by June 30th and paying that interest in advance. You’ll get a discount on the rate for parting with your money earlier and of course, be able to claim an immediate tax deduction.

Thanks for all the RSVP’s for tomorrow nights Info Night with Wayne Pearce. We have over 200 people coming which is pretty much a full house, including our local Mayor, State MP and local media who are again keen to cover the event.

Interesting times. Have a great week.

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