Everything you need to know about interest rate cuts

BMT team — Thu, 03 Oct 2019 00:17:09 +0000

The Reserve Bank of Australia (RBA) made history in the first week of October, slashing the official interest rate and signalling further cuts in the coming months. What is the current interest rate? The RBA dropped the official interest rate to just 0.75 per cent on Tuesday, 1 October. The first time the official cash rate has dropped below 1 per cent in Australia and the third rate cut since June. Interest rates are significant in affecting the economy, which is why the RBA’s decision is so important. If interest rates are lower, it’s likely to encourage more people to take out a mortgage and purchase a property or take out a loan for home renovation. Why did the RBA drop the interest rate? In a statement issued after the call, the RBA said they made the decision to lower the rate in a bid to revive consumer spending, lift Australia’s otherwise stagnant wage growth, drive employment and provide greater confidence that inflation would be consistent with the medium-term target. RBA Governor, Phillip Lowe also noted trade conflict between the United States and China as a contributing factor. “While the outlook for the global economy remains reasonable, the risks are tilted to the downside. The US–China trade and technology disputes are affecting international trade flows and investment as businesses scale back spending plans because of the increased uncertainty,” Lowe said in the statement. “At the same time, in most advanced economies, unemployment rates are low and wage growth has picked up, although inflation remains low. “Interest rates are very low around the world and further monetary easing is widely expected, as central banks respond to the persistent downside risks to the global economy and subdued inflation.” Have the banks passed on the current interest rate? So far, the big four banks have baulked at passing the official interest rate cut in full to consumers. Both the Commonwealth Bank and National Australia Bank (NAB) defied the RBA by refusing to pass on the cut in full just hours after the decision. The Commonwealth unveiled its mortgage rate changes, withholding 12 basis points from borrowers. Treasurer Josh Frydenberg blasted the two banks for failing to pass on interest rate cuts in full, saying it was “very disappointing” and that “customers should vote with their feet.” Reduce Home Loans cut interest rates by 0.20 per cent with the lowest variable rate currently at 2.69 per cent. Homestar Finance and Athena Home Loans both dropped 0.25 per cent, with variable rates at 2.74 per cent and 2.84 per cent respectively. Will there be further rate cuts? The RBA has suggested that another rate drop is expected to take place if the economy remains subdued, however when this might occur remains unclear. “It is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target,” Lowe said. “The [RBA] Board will continue to monitor developments, including in the labour market, and is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”

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Steps to expand your property portfolio

BMT team — Thu, 12 Sep 2019 01:25:22 +0000

Deciding to invest in property is one of the most significant decisions a person can make. Once on the property ladder, it can be argued that it’s just as important to consider when, where and how to expand your property portfolio to avoid risk and broaden the opportunity for success. If you’re considering this, below are some simple steps to be aware of. Do your research on the property market Whether you’re looking to buy your first investment property or expand your portfolio, it’s important to do your research. Consider economic factors and capital growth potential in up-and-coming areas with lower entry costs and forecasting high growth. Look at Development Applications (DAs) to determine any roads and infrastructure projects including new schools, commercial developments, parks and any Council re-zoning submissions as these are likely to attract renters to the area. BMT Tax Depreciation’s online portal MyBMT has a handy ‘Research and insights’ tool allowing you to view planning applications in suburbs where you may want to invest. It’s important to also consider locations with a range of public transport options, nearby employment opportunities for tenants and assess rental yields and vacancy rates. Awareness of these factors can help determine future property income potential to cover expenses involved in purchasing and holding the property. Explore additional factors that may influence your buying decision including your budget, return on investment expectations, type of loan you qualify for and depreciation deductions you may be entitled to. Within MyBMT, take advantage of PropCalc which can help you calculate the cash flow of owning any property. In its projection of future potential cash flow, PropCalc will consider potential depreciation deductions once a property is income producing to help you make an informed decision. Determine your acceptable risk What level of risk are you willing to accept? All property investment comes with financial risk and knowing your limits can go a long way towards alleviating potential stress and ensuring you don’t over-extend your financial obligations. Consider potential changes in economic factors, including interest rates, or any repairs and maintenance that may be required on the property. This will ensure you aren’t leaving yourself without a buffer if unforeseen circumstances emerge. Choose diverse locations and property options If you’re an investor wanting to minimise risk, consider diversifying your property portfolio to expand your reach and spread the financial risks across a broader range of assets. During FY 2018/19, BMT found 74 per cent of investors purchased an investment property within metropolitan areas/capital cities compared to 26 per cent who own regional investment properties. BMT found most investors prefer to stay within their comfort zone, with 92 per cent of those living in metropolitan areas also purchasing an investment property locally, compared to 8 per cent who invested in regional areas. In contrast, regional investors are more likely to invest further afield, with 64 per cent of those living in regional areas purchasing an investment property elsewhere, as 36 per cent then invested in metropolitan areas. One way investors can diversify is by selecting properties in several locations. For example, you might already own a property in Perth where property values fell by -2.1 per cent in the three months to June 2019 according to CoreLogic. If your only property was in Perth and you sold it during this time, you’re likely to have made a loss. However, by investing in other locations that are performing better and achieving capital growth, you can create a financial buffer and reduce your risk. Alternatively, another way to diversify is to consider broadening the types of properties you invest in. Most property investors tend to focus on residential rental properties, however commercial properties are also worth considering as they offer a number of benefits, as explained in our article ‘Why you should invest in commercial property’. Investors owning both residential and commercial properties minimise their risk of a single economic factor or downturn in one area of the property market affecting their entire portfolio. However, some consider commercial properties to carry greater risk due to fluctuating economic factors and possible lengthy vacancy rates between tenancies. Consult a specialist Quantity Surveyor when expanding your property portfolio Once a purchase has been made and you’ve exchanged contracts on a second property, consult a specialist Quantity Surveyor to obtain a comprehensive tax depreciation schedule for the property. BMT staff can assist you over the phone or alternatively you can request a new schedule at bmtqs.com.au or via online portal MyBMT. This online portal makes managing all your property investment and depreciation needs for multiple properties easy as all information is contained within the one handy location. Register for MyBMT today or alternatively Request a Quote online or speak with one of our expert team on 1300 728 726.

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Everything you need to know about interest rate cuts

Steps to expand your property portfolio