Up or down – where are interest rates headed next?

Interest-RatesThe Reserve Bank of Australia delivered its highly anticipated interest rate decision last week, leaving interest rates at the record-low 2 per cent.

Last week’s decision came as no real surprise, however there are mixed opinions on whether or not interest rates will go up or down in the future.

As we mentioned recently, some experts believe that interest rates still have lower to go, and that the RBA will have no choice but to lower rates in the coming months, following the fallout of the Chinese share market.

However while there is always a chance that interest rates will go lower, there is also a strong case for interest rates to go up.

A survey of economists and commentators from finder.com.au, found that 53.1 per cent believe that rates will start rising in 2016.

The reasoning is that interest rates are already extremely low and a further decrease may not be helpful to the Australia economy. Lower rates can cause a loss of consumer confidence and this can lead to people being more cautious in their spending. Improvements in the unemployment rate may also be a reason to lift rates.

Indeed, many are also hoping for higher interest rates to help take some of the heat out of the Sydney and Melbourne property markets, however the banks have already started tightening their restrictions on investor loans to help ease market pressure and there is a chance that they will continue to move rates independently of the RBA.

For those planning on taking out a new loan, make sure you can afford to pay your loan at a higher rate in case they do go up at some stage. You should always create a buffer for yourself and make sure that you can service a higher rate.

It’s also worth taking advantage of current low rates while you can by getting ahead on repayments and paying off as much of your loan as possible, because it will be harder to do so if interest rates go up. Borrowers should also check that their loan hasn’t been classified as an investor loan by accident (e.g. property owners who have moved into an investment property) because there is a chance that you’re paying a higher interest rate then you should be.

The team at Arbee Real Estate are interested to hear everyone’s interest rate predictions – do you think the next move will be up or down?