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RBA holds firm this month, keeping the cash rate at the record low setting of 0.25%

RBA holds firm this month, keeping the cash rate at the record low setting of 0.25%

Amidst rising speculation that interest rates are set to fall further, the RBA chose to hold firm this month, keeping the cash rate at the record low setting of 0.25%.  Such a low setting for interest rates, along with policies aimed at ensuring liquidity across financial markets, has been a key factor in supporting housing market activity and insulating home values.  With owner occupier mortgage rates for new loan originations typically between 2% and 3%, housing finance commitments have surged, and CoreLogic’s estimate of home sales over the September quarter is tracking slightly higher than a year ago.  Nationally, housing values are down 2.1% since peaking in April. However, the most recent trend is showing the market is stabilising, and outside of Sydney and Melbourne, housing values have nudged higher.

The hold decision comes on the same day the federal government is set to announce both an unprecedented level of government debt, as well as additional stimulus measures aimed at supporting jobs growth, consumption and improving productivity.  The focus now will be on whether the stimulus measures announced in the budget tonight are enough to offset the tapering of JobKeeper and the effect of higher mortgage arrears as home loan repayment deferrals become less prevalent.

With the cash rate and mortgage rates set to remain low or reduce even further, prospective home buyers are likely to feel more confident in making high commitment purchasing decisions, such as property.  Government incentives, such as the first home loan deposit guarantee, the first home buyers grant and the HomeBuilder grant, along with state based incentives such as stamp duty discounts, have supported greater levels of participation from first home buyers, while existing mortgage holders have been shopping around for the best mortgage rates fuelling a surge in refinancing.

This article is republished from corelogic.com.au under a Creative Commons license. Read the original article.

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Finance

RBA Urges Banks to Keep Lending

RBA Urges Banks to Keep Lending-min

The Reserve Bank is urging major banks to use their buffers to keep lending to support business and developers following the largest economic contraction since World War II.

The Financial Stability Review showed banks’ share-to-price book ratios have recovered from March but they are still below pre-pandemic levels “reflecting a decline in the earnings outlook and a reduction in investors’ risk appetite”.

Although banks may want to maintain capital buffers, reducing credit would have a significant impact on the economy according to the RBA.

According to stress test simulations in the report showed banks have sensitivity to falls in GDP, property prices and unemployment.

Despite this uncertainty, housing finance grew 12.6 per cent in August off the back of government stimulus packages.

However, there were still risks associated with commercial real estate with conditions deteriorating in retail and the once tight office sector according to the RBA.

“The Australian banking system entered the pandemic with a much stronger capital position than in previous downturns,” the RBA review said.

“This balance sheet strength has enabled banks to absorb shocks, rather than amplify them as they did in the GFC.

“Banks have continued to lend, including enabling businesses to draw down lines of credit as a precaution early in the crisis.

“They do, however, face the prospect of sharp rises in borrower defaults.”

The review recognised some banks may be unwilling to eat into buffers due to facing automatic restrictions on earning distributions and acquiring lower capital ratios which could limit access or increase cost of funding.

Banks also want to avoiding regulatory repercussions as a way of reducing their own risks and protecting themselves.

“If banks were to cease lending in an attempt to conserve their capital buffers, the reduction in credit availability would have a significant contractionary impact on the economy,” the RBA said.

“By amplifying the downturn, this contraction in credit supply would ultimately be detrimental to the banking system.”

This article is republished from theurbandeveloper.com under a Creative Commons license. Read the original article.

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RENEE MCKEOWN

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Finance

Stimulus Pushes Lending to Record Highs

Stimulus Pushes Lending to Record Highs

Government stimulus has shown up in the latest lending figures as Australians take advantage of record low interest rates and government support to invest in new housing.

Housing finance grew 12.6 per cent in August, outstripping the previous 10.7 per cent gain in July, with first home buyers and owner-occupiers leading the charge.

First home buyers grew 18.3 per cent, while owner-occupiers clocked a 13.6 per cent increase—the largest month-on-month rise in the history of the series.

Housing finance figures are expected to increase again when the removal of responsible lending curbs take effect and place upward pressure on house prices despite stagnant net migration acting as a counter weight.

ABS’ August figures reflect customer demand in June and early July—prior to Victoria imposing its stage 3 and stage 4 restrictions.

Westpac economist Matthew Hassan said the impact on lending from Melbourne’s lockdown will be seen in next month’s figures.

“However, some other drivers of the strength in August will continue,” Hassan said.

“Reopening rebounds are likely to gather momentum in other states—‘catch-up’ activity augmented by low interest rates and ongoing fiscal supports.”

Meanwhile, the Reserve Bank said that rising levels of financial stress will increase the risk of home loan defaults.

In its bi-annual financial stability review, the bank said that if the unemployment rate hits 10 per cent it will double the rate of housing arrears.

“While credit is available at very low interest rates, reduced housing demand from very low immigration and the rise in unemployment contribute to the risk of further falls in housing prices,” the central bank said.

“This increases the potential for losses for lenders in the event of a rise in distressed sales.”

Mortgage arrears are expected to increase once the payment deferrals period ends.

Almost 900,000 mortgages, about one in 10, were deferred in March. By August, 9 per cent of loans worth $160 billion remained on deferral.

S&P analyst Erin Kitson said mortgage arrear rises are likely to be more pronounced in Victoria and areas where tourism is a major employer.

This article is republished from theurbandeveloper.com under a Creative Commons license. Read the original article.

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ANA NARVAEZ

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Finance

Stimulus Pushes Lending to Record Highs

Stimulus Pushes Lending to Record Highs

Government stimulus has shown up in the latest lending figures as Australians take advantage of record low interest rates and government support to invest in new housing.

Housing finance grew 12.6 per cent in August, outstripping the previous 10.7 per cent gain in July, with first home buyers and owner-occupiers leading the charge.

First home buyers grew 18.3 per cent, while owner-occupiers clocked a 13.6 per cent increase—the largest month-on-month rise in the history of the series.

Housing finance figures are expected to increase again when the removal of responsible lending curbs take effect and place upward pressure on house prices despite stagnant net migration acting as a counter weight.

ABS’ August figures reflect customer demand in June and early July—prior to Victoria imposing its stage 3 and stage 4 restrictions.

Westpac economist Matthew Hassan said the impact on lending from Melbourne’s lockdown will be seen in next month’s figures.

“However, some other drivers of the strength in August will continue,” Hassan said.

“Reopening rebounds are likely to gather momentum in other states—‘catch-up’ activity augmented by low interest rates and ongoing fiscal supports.”

Meanwhile, the Reserve Bank said that rising levels of financial stress will increase the risk of home loan defaults.

In its bi-annual financial stability review, the bank said that if the unemployment rate hits 10 per cent it will double the rate of housing arrears.

“While credit is available at very low interest rates, reduced housing demand from very low immigration and the rise in unemployment contribute to the risk of further falls in housing prices,” the central bank said.

“This increases the potential for losses for lenders in the event of a rise in distressed sales.”

Mortgage arrears are expected to increase once the payment deferrals period ends.

Almost 900,000 mortgages, about one in 10, were deferred in March. By August, 9 per cent of loans worth $160 billion remained on deferral.

S&P analyst Erin Kitson said mortgage arrear rises are likely to be more pronounced in Victoria and areas where tourism is a major employer.

This article is republished from theurbandeveloper.com under a Creative Commons license. Read the original article.

________________________________________________________________________________

Ana Narvaez

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