What the Election means for your home loan
It has widely been reported that the Reserve Bank of Australia (RBA) decided to keep interest rates on hold until after the election. Just as many stories have also circulated that the banks will most likely raise rates after the election – regardless of what the RBA does with the official cash rate. There is little doubt that whichever party wins the election, will quickly feel pressure to get rates down again. And that the opposition party will blame the incumbent government for the rise.
Of course, the parties take the credit when rates are low and blame the other when they rise, but how does the policies of the Liberal and Labor parties actually impact rates?
Tony Abbott recently spoke knowingly of ‘mortgage stress’, while at the recent RSL event, Julia Gillard asked for a show of hands of who had a mortgage and who would be able to keep their house if they lost their jobs. Although these comments suggest that both parties are aware of consumer concerns, neither party is really saying whether or not they can keep rates low. Let us turn to historical data to determine what, if anything, the election means for your home loan.
A glance through history suggests that if the Liberal Party wins the election, they will try to keep interest rates low, but this usually sees a reduction on spending on services such as welfare, telecommunications and infrastructure programs. The official lending rate came down as low as six per cent in 2003 when the Howard Government was in office. This was in stark contrast to the highs experienced in the early 1990’s when the Labor Party held government. During this time, interest rates were up to nearly 18 per cent, which spelt disaster for many mortgage holders.
Undoubtedly, the effects of the Coalition keeping interest rates low was seen to come at the detriment of other major considerations. For example, the Country’s resources wealth was said to have been spent on ‘middle-class welfare’ when it could have been used to build infrastructure. In addition, the Howard government’s broadband policy is still the subject of criticism. Tony Abbott backed up his comment about resonating with those who suffer from mortgage stress by recently pledging to keep rates low if he is elected.
In contrast, history suggests that a win for the Labor government could see mortgage holders get hit with higher interest rates. The Labor Government’s history of high interest rates has been blamed on its policies however, treasurer Wayne Swan recently claimed that this is because Labor has invested heavily in essential infrastructure, education and training. Investment in these key areas deals with issues that put upwards pressure on inflation, which affects the Reserve Bank’s decision on the official cash rate.
Although the RBA is an impartial authority, there is no doubt that government policy does affect rates. Many Australians will be wondering whether now would be a good time to fix their home loan rate – or move to variable. One thing is for certain; whichever party is sworn into government, their policies will not have an overwhelming overnight effect on interest rates, it will surely be a gradual process. But – if you are on a variable rate – then it’s probably a safe bet to assume the banks will add an extra few points onto their rates, so now may be a good time to look for a more competitive rate.
