Fixed Rate Cuts Signal Potential Rate Drops: What This Means for Property Investors
With major banks slashing their fixed rates, we’re seeing a clear message—interest rates are likely to fall in the near future. St George has reduced fixed rates by an average of 0.54 of a percentage point, and Westpac by 0.60 of a percentage point. NAB cut its three-year fixed rate by 0.6 of a percentage point in July and CBA also cut fixed rates across one-, two-, three- and four-year terms by up to 0.70 of a percentage point.
What’s the takeaway?
Banks are signalling that interest rates may be on a downward trajectory over the next few months. By cutting fixed rates, they’re trying to lock borrowers in before variable rates begin to fall. With access to real-time economic data, thanks to the dominance of electronic payments, banks have likely spotted a slowdown in consumer spending, indicating an economic softening ahead.
How can you seize the moment?
Right now, fixed rates on some loan products are lower than variable rates, creating an immediate opportunity to borrow more at a lower cost. More borrowing power means you could afford a higher-priced investment property, which increases your potential for capital growth.
For example, consider the current Westpac rates. If you were to take an 80% LVR investment loan, the variable interest rate might sit around 6.72%. However, if you opt for a 5-year fixed rate on the same loan, your interest rate drops to 6.19%. This difference can significantly impact your borrowing capacity.
Before you decide on whether to go with fixed or variable rates, consult your specialist investment finance broker. Their insight will ensure you make the most informed decision for your investment strategy in this shifting financial climate.