For those home owners with a mortgage, or prospective buyers looking to purchase real estate soon, last week's interest rate decision by the Reserve Bank of Australia was good news and brought some relief.
After almost a month of speculation that interest rates would be increased in July, the RBA decided to keep rates steady at 4.5 per cent, making this the third consecutive month that interest rates have been kept on hold.
The RBA's decision came off the back of official inflation data for the June quarter which showed that inflation was far lower than expected, potentially indicating that consumers are spending with caution. Glenn Stevens, the Governor of the RBA, said that he expected core inflation to fall within the top half of the RBA's target zone until mid-2011.
As a result, many economists are now expecting that rates will be held at 4.5 per cent until mid-2011, unless there is an increase in consumer spending.
For mortgage holders the rate decision buys some more time before the possibility of an increase in monthly mortgage repayments occurs. But how long will this last? Nobody can be certain. Definitely until the first week of September when the next decision is due and very possibly into next year.
I think that the wisest financial approach to this unknown period would be to prepare your budget and position yourself well for potential rises in the future. Now is the time to consider your household expenses and look to see if there is a little bit spare here and there which can be used to build up the equity in your mortgage. Now that we're coming to the end of winter for instance, the savings you start to make as you reduce your heating costs could be contributed towards your mortgage.
For prospective buyers, as banks are likely to increase their rates in line with the RBA, you now have at least another month to secure an attractive fixed rate mortgage. Our internal Century 21 data suggests that property listings are currently up compared to where they were last year, which means that there could be buying opportunities aplenty near where you are.
Whether interest rates change next month or next year, just remember that they can't stay on hold forever, which means that your monthly mortgage repayments could change. If you plan ahead for this, you can effectively diminish the effect that any increase in rates has on your budget.