Historically low interest rates will become the “new normal”, according to a mortgage veteran, with borrowers highly sensitive to future rate rises.
1300HomeLoan managing director John Kolenda says interest rates will likely remain around historical lows for the next decade due the continuing impact of the global finance crisis (GFC) which has changed consumer behaviour.
“Variable interest rates over the last 50 or more years have averaged around mid to high 7% range, but for the next decade we will see a much lower average variable rate,” he said.
“Considering the recent hikes in rates made by many of the lenders we would have seen variable rate averages of around the mid to high 4% range. The new norm of the future will see variable rates stay below 7% with an average far less than the historical past.
“The GFC has changed society and consumers are generally more sensitive to economic conditions and what is happening with interest rates. Post GFC we have seen a dramatic change in consumer behaviour as they prefer to save money and spend wisely versus the credit spending frenzy for the decade before the GFC.”
According to Kolenda, the Reserve Bank of Australia (
RBA) will have to “tread carefully” with future cash rate movements, as consumers will react sharply.
“…any future rate increase will result in a dramatic halt to consumer spending and confidence which in turn will slow the economy,” Kolenda said.
“The RBA will have to tread carefully with rate movements as gone are the days of increasing rates consecutively in an attempt to slow inflation. The world has changed and consumers will sharply react to measures taken by the RBA when the central bank does consider increasing rates.”
The slowdown in China and the rest of Asia, in particular, remains the big concern for the RBA, says Kolenda, and a strong argument for cutting rates next month and into 2016.
