Feb 9, 2018 | Wealth management

5-Part Interest Rate Series

Welcome to our 5 part series where we’ll explore the factors that may drive interest rates over the coming year and what you can do to insulate yourself against any changes.

Once again we’ve seen the reserve bank keep interest rates on hold at a record low 1.5%.  While most people look to the reserve bank decision each month for an indication of what the retail lenders will do, it’s important to note that bank interest rates are not dictated by the RBA and can change independently of any RBA decision.  In the last 12 months for example, we have seen investment loan rates increase by up to 1% without any movement from the RBA.  Regulatory measures were the primary culprit for the rate rise but the banks also capitalised on this excuse and saw an opportunity to maximise profits – enter royal commission.

1/5. This brings us to the first of five factors that could prove to be a catalyst for rising rates in 2018 – Reputational damage.

The royal commission has caused significant reputational damage for the major banks in Australia.  While our banks rely heavily on deposits in order to lend out money, demand for credit in Australia has outpaced deposits for some time.  As a result our banks need to access wholesale funding, a good percentage of which comes from overseas.  In the same way that we as consumers have to pay a higher rate of interest if we have a poor credit rating (to account for risk), so too do our banks.  This could be a catalyst for interest rate increases.  Look beyond what the reserve bank does, the big risk facing borrowers is that our banks have to pay more for their wholesale funding and inevitably pass it on to consumers.

What can you do?

  1. If you’re in a position to pay down debt aggressively, do it.
  2. There are lending structures you can implement that minimise the amount of interest you pay.
  3. There are some competitive fixed rate loans on the market to give you certainty of repayments.
  4. Call us – we can assess your financial position and provide unbiased advice on how best to carry your debt into what could be quite an uncertain time.

Look out for our email on the 23rd of February to find out which other factors may impact interest rates in the coming year.

Disclaimer: This information has been prepared by Primestock Securities Limited ABN 67 089 676 068, AFSL 239180 (“Prime”). Prime accepts no obligation to correct or update the information or opinions in it. This information does not take into account your objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate to your situation. It is recommended that you obtain financial, legal and taxation advice before making any financial investment decision. Prime is bound by the Australian Privacy Principles for the handling of personal information.

This information has been prepared by Primestock Securities Limited ABN 67 089 676 068, AFSL 239180 (“Prime”). Prime accepts no obligation to correct or update the information or opinions in it. This information does not take into account your objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate to your situation. It is recommended that you obtain financial, legal and taxation advice before making any financial investment decision. Prime is bound by the Australian Privacy Principles for the handling of personal information.

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