Cheap Money

Graeme Salt

Interest rates are the price we pay for borrowing money. And, right now, the price is pretty good.


 


The beneficiaries of this cheap money are those of us who borrow to buy a property. Aussie homeowners are facing record-low rates because, elsewhere in our interconnected world, rates are even lower. While those ultra-low rates benefit borrowers in Manchester, Manilla and Manhattan, they also benefit borrowers in Ballarat, Brisbane and Bernie.


 


This is because the dollars that you and I borrow from the bank to buy our homes often do not belong to the bank. Frequently, the bank has borrowed this money from someone else; sometimes it is savers who deposit money with the bank, sometimes it is overseas investors who want to make a return on their money.


 


With rates ultra-low elsewhere in the world, investors want to place that money where they can get a higher return. And with Australia’s interest rates higher than most of the World, here is a good place.


 


For example, ANZ has just borrowed $2.4 billion from US investors a rate of 1.25 per cent.


 


Thankfully, these cheap rates often flow through to Australian borrowers (though never as much as we would like). For example, research by DFA shows that for larger loans, banks will often discount the rate by as much as one per cent off their standard variable rate.


 


And as the small lenders have access to this ultra-cheap international money, it allows them to take the fight to the Big Four.


 


As a result, good mortgage brokers are sourcing variable loans for their clients at around 4.8 per cent. Sure it is not as cheap as what homeowners in Liverpool, Los Angeles or Lima pay. But, even here, money is cheaper than it has been for years.


 


Graeme Salt is a Sydney-based mortgage broker.  He can be contacted on 02 9922 5055