Mortgage interest rate predictions for 2013

By Lauren Leisk, Yahoo7 Moneyhound January 10, 2013, 9:00 am

A list of indicators for what interest rates will do in 2013 and how these changes will affect you.

For everyone from home owners to investors, and from first-home hunters to landlords, upcoming interest rates movements are a hot topic.

The start of the year is the time when we tune in to hear the official word on interest rate forecasts from the big banks.

What do they predict will happen? How will it affect our home loan repayments and investment opportunities? And, most importantly, should we be expecting rates to go up or down?

Related: What does the RBA consider when it comes to moving interest rates?

Early cuts to cash rates in 2013?

Westpac chief executive Gail Kelly recently predicted further rate cuts, saying the Reserve Bank of Australia could move as soon as the central banks’ first meeting of the year in February. Meanwhile, traders are factoring in a 60 per cent chance of the rate cut of 0.25 percentage points, taking the cash rate to 2.75 per cent.

Interest rate cuts to boost confidence

Traditionally, rate cuts often occur to boost consumer and business confidence in the economy. National Australia Bank’s index of business confidence polls executives from 600 companies. The results dropped in November to the lowest level since April 2009, when many considered the country to be at the height of the GFC.

This weak indicator is also expected to pressure the RBA to cut interest rates in 2013.

Slowing economy could lead to rate cuts

Australia's economy slightly slumped late in 2012. Some of our biggest exports including iron ore and coal dropped 10 per cent to 20 per cent on the back of a slower Asian market. The NAB survey found pessimism at the corporate end of the resources sector in line with another view that rates would be cut.

What rate cuts mean for property owners and buyers

Australian house prices can often bounce back in the wake of lower interest rates. AMP Capital chief economist Shane Oliver recently gave some views for 2013, saying the property market could expect a modest bounce back of 4 per cent to 5 per cent if we see the lower mortgage rates.

Related: Lock in these rates before it’s too late - fixed rate home loans

Our dollar in 2013

According to the Commonwealth Bank’s latest Australian dollar barometer, 2013 should kick off with a strong start. The report measures companies' expectations of our currency and shows that both importers and exporters expect the currency to start high before slowly depreciating. The most optimistic predictions tip the Aussie dollar to reach 106 US cents by March and remain above 103 cents for the rest of the year.

The lowest forecast for 2013 interest rates

The ANZ bank recently slashed its RBA cash rate forecasts for 2013. The bank had been tipping cash rates would remain around the 3 per cent mark.

However, in mid-December the bank made expectations of a 25 basis point cut in each quarter, ending the year at 2 per cent.

Related: What is a split rate home loan?

How cuts will affect your home loan repayments

According to the RBA, average three-year, fixed-rate home loans are now the cheapest on record (that’s since 1990). The “standard variable” has also dipped close to the 40-year low of 2009, when unemployment was expected to spike.

When current variable rate home loans are cut by 0.20 per cent, on a 30-year home loan of $300,000 you might save around $40 a month. It might not sound like a massive windfall, but take the Commonwealth Bank figures as one example. Since November 2011, the bank has cut its standard variable rate (along with most other big banks) by 1.41 per cent per annum. On a 30-year home loan of $300,000, this saves you about $285 a month.

Related: Top 10 ways to improve your personal finances in 2013

With so many savings up for grabs from a few small movements in percentage points, it’s not surprising to see the RBA changes making big headlines. Both home owners and first-home shoppers will have their fingers crossed waiting for good news in early 2013.

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