What Does The Record Low Interest Rates Mean for Us?

Government Policies

Interest rates are at a record low of 0.25% and the central bank has injected a huge amount of cash, approximately $35 billion of government bonds, into the Australian economy in order to ease job loss burdens (Hall, 2020). Morrison announced rent relief packages, legally requiring commercial landlords to reduce a proportion of the lease/rental agreement depending on businesses who meet the requirements. However, it is uncertain what will happen with residential tenancies - while tenants are still expected to pay their full rent there has been an ‘eviction ban’ for those who have lost their income/job from the coronavirus pandemic (ABC, 2020).

Industry

Banks are postponing mortgage payments during the Coronavirus pandemic. The Big Four (Commonwealth, Westpac, NAB and ANZ) are all allowing deferred loan payments but also announced interest capitalisation (ABC, 2020). As a result of the pandemic, there could be a positive shift towards suburban living, with people moving to areas less densely populated. Mr Ciemitis mentions that although people enjoy the ease of service/product availability in urban life from the pandemic, people who are stuck in apartments could begin to desire areas that emphasise parks and outdoor recreation (ABC, 2020). Property prices could fall as low as 30% especially in cities like Sydney and Melbourne, depending on the developments of the COVID-19 restrictions. If the ban on auctions and open houses are lifted by the end of April then the housing market could easily bounce back, however if it continues until the end of June the fall in the housing market may not recover till December (Brewster, 2020).

Adapting to Online Services

Vast Capital is not the only company to start adapting towards a digital process for consumers. We continue to provide a seamless mortgage solution, now attainable through our free 1:1 online loan enquiry service which can be booked directly on the Vast Capital Website. This is the solution to getting mortgage solutions from anywhere, even from home. The surging popularity of teleconferencing services such as Zoom and Skype for work and projects has opened new channels for companies to interact with consumers, for example restaurants and grocery shops primarily use food delivery services such as Uber Eats and Deliveroo to maintain their businesses. All these developments will likely cause a significant shift in consumer behaviour and further growth/demand for videoconferencing. Online channels will become the norm and will supplement the traditional channels to deliver products and services. After the pandemic the economy will return towards the original equilibrium, but a growing number of businesses will adapt an omni-channel approach to goods and services distribution (ABC, 2020).

How Will It Affect The Real Estate Market?

“While Australian banks’ current asset quality is very strong, it will deteriorate significantly if disruptions persist for a prolonged period and push up the unemployment rate, which will lead to more impairments of residential mortgages, which comprise approximately two-thirds of banking system loans,” Moody’s stated (Kadib, 2020). According to the ratings agency, the outbreak is set to “increase the strain” on the banking sector’s operating environment and impair loan performance, with an increase in loan provisioning and record-low interest rates to squeeze bank margins (Kadib, 2020). This suggests that if the situation is prolonged it will cause difficulty in bank loan approval due to stricter credit checks.

Vast Capital’s Response

In Deliotte’s 2020 Australian Mortgage Report, Susan Mitchell from Mortgage Choice mentioned a “need to ensure we invest in the IT systems and process” (Deloitte Australia, 2020). We continue to provide a seamless mortgage solution, now attainable through our free 1:1 online consultation which can be booked directly on the Vast Capital Website. This is the solution to getting mortgage solutions for anywhere, even from home. We continue to use simple and quick internal credit checking methods so that we can provide low interest and flexible products during the pandemic.

What Did The Unpredictable Situation (COVID-19) Do To The Australian Mortgage Market?

2019 brought negative growth in consumer borrowing in Sydney and Melbourne and a predicted increase in return of settlement (Deloitte Australia, 2020). The unpredictable COVID-19 Crisis has caused many lenders and banks to slash interest rates - according to MOZO, last week ING dropped its 2-year fixed rate to 2.09%. Interest rates are also expected to continually decrease in the coming years (Fleeting, 2020).

The Government’s Response Through Policies

(Mardiasmo, 2020)

The government is progressing with the First Home Loan Deposit Scheme through the extension of the loan approval period by an additional 3 months. However, this may not be enough for buyers to continue with their property buying journey. Morrison continues with proposals of tax cuts for firms earning under $50 million, while personal income tax cuts begin the following financial year despite introducing new measures such as the subsidy scheme (Opray, 2020). To help businesses, Morrison has announced a new subsidy program to prevent millions of people from losing their job. “The subsidy is the central plank in a $130 billion economic stimulus package, the third and largest package the Government has announced in response to the coronavirus” (Worthington, 2020)