Why waste low rates?

Amid all the negative news of the past few months, there are two great reasons to take steps now to get finance organised for the your next big project. The first is low interest rates and the second is funding innovation. Allow me to explain.

I have been in the financial marketplace long enough to remember back to a time when interest rates in Australia were in the high teens. That’s right. In the late 1980s and early 90s the official cash rate was sky rocketing and the trend was carrying through to mortgages and business loans.

The official Reserve Bank of Australia (RBA) cash rate peaked at an incredible 17.5 per cent in January 1990 – it’s a number that is difficult to imagine for today’s borrowers but it was real.?

Now we tend to take for granted our extended run of record-low interest rates. At its most recent Board meeting the RBA kept the cash rate unchanged at the record-low 0.1 per cent – what a contrast to the whopping 17.5 per cent some of us remember.

This ongoing run of record-low interest rates makes it an ideal time to borrow funds – the historically most ideal time to borrow funds. To not take advantage of such low rates would be a strategic mistake for many.

There is so much negative economic news around at the moment. The ongoing impacts of the Delta variant on the major Australian construction markets of Sydney and Melbourne have blighted the appetite of some for starting anything. The precarious situation in Kabul has blunted global growth trends. It is difficult to see the pieces of blue sky amidst the gloom but they are there and ongoing low interest rates is definitely one of the major reasons why borrowers, investors and entrepreneurs should not be focused on the gloom.

I am a strong believer in being at the front of a trend instead of at the tail end. In uncertain times, and there is no doubt that these are uncertain times, it is easy to be risk-averse and wait to see how other players move before putting your own strategy in play.

Record low interest rates are a critical reason not to wait. There has been no better time in Australia to borrow and we can be certain that the cash rate is not going to change before 2024. In the words of the RBA, the domestic economy is expected to grow by four per cent in 2022 and by around 2.5 per cent in 2023. However, the bank has also said it will not increase the cash rate until inflation is in the two to three per cent band and that is not going to happen until 2022.

The second reason to strike early is that low interest rates can be combined with a level of product innovation that makes project financing much easier than you might think. It is a matter of thinking beyond traditional borrowing relationships and traditional loan products.

For example, did you know that it is possible to fund a residential property on new developments to 100 per cent for the final purchasers of the properties? It sounds almost as incredible as a 17.5 per cent cash rate but it is true. Acuity’s 100 per cent funding facility enables developers to access a rate of around four per cent for the purchasers of their developments by combining a loan from one of the major banks and a loan from Acuity Funding . And the return to the investor on that investment is significantly above what you’ll get for money in the bank.

So if you are tired of sitting on your hands while the world gets back to normal, why wait? Take advantage of product innovation and low interest rates to beat the crowd and get back into the marketplace. Call me on 02 9489 0609 or email [email protected] for more information.