Interest rate cuts

The Big Four have cut interest rates this week.

Yes. You read that correctly.

The Big Four banks have cut fixed rate mortgages for investors and owner-occupiers.

I know … it’s unusual for banks to cut rates in favour of consumers!

But Read again, that’s Fixed Interest Rates

So what is going on?

Well, it’s not an entirely altruistic move. The banks want to lock borrowers into loans as the economic outlook brightens a little.

Inflation pressures look set to ease, and the word amongst the ‘economic experts’ is that the worst of interest rate hikes are now behind us – they could be lowered as soon as the middle of next year – 9 months or so away.

What does that mean for you? A few things.

1. Firstly, it gives us the opportunity to talk about cycles, and the importance of planning for them.

Economic ‘cycles’ are often the reason I don’t buy too much into the economic “doom and gloom” story, and yes, I have been called “Pollyanna” because of it.

While it’s necessary to acknowledge when times are tough and to talk about immediate strategies for protecting cash flow, and securing funding, it’s even more important to stay focused on the fact that cycles change – and to plan for the long term.

This current downturn came on pretty quickly and fairly strong. It bit hard, and I won’t shy away from that. I know small businesses have done it very tough since the pandemic and I’ve worked with several as they’ve navigated some testing times over the past few years.

But the move from the banks this week is a signal that the downturn appears to be easing. Of course, it’s not as simple as “Pass Go collect $200 and celebrate” …. cycles blend, and because this current downturn has been particularly difficult, there will be repercussions … a “hangover” period, if you like.

Timing is not predictable, but this move by the banks should be seen as an encouraging sign.

2. Secondly, if you did lock in interest rates at the beginning of the rate hikes last year, then just keep an eye on what’s happening between now and Christmas, talk to your lender, talk to your accountant.

It might be time to get out of a fixed loan – but it will depend on a range of factors – including things like the costs involved, how long you’re locked in, and whether you’re better off making a decision soon, or leaving it for now. Break costs can be in the thousands of dollars so you need to do the math.

I’m just saying – stay informed and consider your personal circumstances in the context of what the RBA decides, and the Big Four banks do.

3. Thirdly, make a note of the fact that fluctuating interest rates – we’ll see this happening as soon as rates begin to come back down and the lenders feel pressure to compete with each other – can also offer opportunities to refinance – to get a better deal overall.

This particular scenario is definitely some months away. But when we start to see some downward interest rate movement on a consistent and regular basis, it can be a time to compare lenders and make some inquiries. Remember though, that banks will want all your paperwork current and up to date. This can take some preparation time, so get organised before you do anything.

I will write a longer article on the importance of planning for cycles soon. In the meantime, take this week’s fixed rate cuts as a positive sign, but don’t forget that the economy is still fragile, so make considered moves. It’s not the time for big bold, dramatic changes.

Fixed Interest rate cuts, particularly for mortgage holders, will begin to ease the financial strain on many households, although it will be a while before we see any real translation of this into increased consumer confidence and increased consumer spending. Christmas might be a quiet one for retailers. I don’t want to make predictions, all I want to say for now is, stay prepared, and proceed with caution.

General Advice Warning

The information contained? in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. Taxation, legal and other matters referred to are of a general nature only and are based on Michael Mekhitarian’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

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