More relief for investors as RBA drops rates

More relief for investors as RBA drops rates

Posted on Tuesday, December 06 2011 at 3:20 PM

It’s the Christmas present all homeowners were hoping for – the Reserve Bank of Australia (RBA) has lowered the cash rate to 4.25 per cent in its final meeting of the year.

It’s the second drop in two months, potentially making your investment property that little bit easier to hold. For those who negative gear, it could mean repayments are now about $50 less per month. For those into positive gearing, your pay packet each week is likely to start looking even better.

RBA Governor Glenn Stevens says the reasons behind the drop include the fact that growth in the global economy has slowed and Europe’s financial problems continue to deteriorate.

“China’s growth has been slowing,” Stevens says.

“Trade in Asia is now, however, seeing some effects of a significant slowing in the economic activity in Europe. Financial markets have experienced considerable turbulence and financing conditions have become much more difficult.”

Domain property expert Carolyn Boyd says the reduction is good news for people paying off a mortgage, provided that banks pass on the cut.
“This will put an extra $60 in the pockets of borrowers each month,” she says.

“It’s a smart idea to keep your repayments at the same amount as you were paying before this cut. That way, you can pay your mortgage off sooner but have no less money in your pocket than you did last month. There’s plenty to gain here with no extra pain.”

Mortgage Choice spokesperson Belinda Williamson says the decision might entice some buyers who’ve had a ‘wait and see’ approach, while managing director of tax depreciation company DEPPRO, Paul Bennion, adds the rate cuts could also see rental yields improve for investors.

“In most capital cities throughout Australia, rental yields for apartments have increased to above five per cent over the past 12 months,” he says.
“Rising rental yields combined with falling interest rates and very competitive property prices are a financial trifecta which will result in renewed activity by property investors during 2012.”

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