Interest rates are a key topic of conversation, commentary and consternation. So where does this arise and what are the prospects moving forward? It is well known that interest rates are at historic lows which means the next move really has to be in an upwards direction. Making a prediction as to when that will or might happen, depends on which experts, economists or general commentary you are influenced by. If embarking on buying a boat with finance in the near future, marine finance interest rates will be of interest and importance. In an attempt to explain the interest rate scenario, Jade Boat Loans tackles the burning issue of when will boat loan interest rates go up?
How interest rates are set
It’s worth understanding how interest rates in general are set and what conditions and factor influence when they go up and when go down. The lending market take their cue so to speak from the official cash rate which is set by the Reserve Bank of Australia (RBA). This is not the rate that lenders will offer their finance products at, but essentially a bank-to-bank, lender-to-lender rate.
The RBA make changes to this official cash rate in response to economic conditions in Australia. It forms the country’s Monetary Policy. By lowering the rate, money is cheaper to borrow and as such it is an attractive option for business to invest in new assets and consumers to purchase goods.
As part of the response to the economic fallout of the pandemic, the RBA cut the official cash rate several times in 2020 to encourage businesses to invest and hence stimulate the economy. The rate hit the current historic low of 0.1% in November 2020 and has been kept steady since.
Loan Type Rate Variations
Much of the fixation on interest rates in Australia is driven by the housing market. Australians are considered to be keener to own their home than residents in some other countries and that flows through to a focus on home loans and lending rates. The home loan mortgage market is the largest lending sector.
When the RBA moves on rates – increases or decreases – the banks in particular, will typically respond with a change to their home loan interest rates. Other lending and savings rates may also change.
But home loans and boat loans differ in a number of key areas and changes in the official cash rate, that is talk of rate hikes or cuts, may not have such a significant impact on marine finance as on the home mortgage market.
Home loan terms which can be 20-25 years cover a much greater time period than boat loans which we offer at terms of up to 7 years. A lot can change in interest rates over 20 years and the rate set-up reflects that.
Home loans can have a variable rate and a fixed rate component. The fixed part is usually only for a few years and then the variable rate applies. So any increases in rates will affect the home loan holder in the variable rate component. When taking out a home mortgage, borrowers need to plan well ahead to take into account any potential rate rises.
Boat loans are typically available at a fixed interest rate for the full loan term. We do have some banks that offer variable rate loans for boat finance as you can see in our Interest Rate Comparison Table which shows the loans offered by a range of lenders.
Lender Rate Variations
Interest rates vary across lenders and for different types of loans. Bank and non-bank lenders will set their individual interest rates based on what costs they have to acquire their funds and on how they view a particular lending market.
Some lenders focus heavily and in cases solely on say the home loan market. Others are more focussed on consumer finance for goods such as cars, caravans and boats. Lenders that specialise in a particular segment may typically offer a cheaper interest rate on those loans as they have a greater interest in lending in that area and usually a better understanding of the market.
Jade Boat Loans is accredited with multiple banks and lenders so we can source the cheapest interest rate and best offer to suit individual clients. Lenders will change their rates at varying times so the best loan offered from a lender today may not be the best we can source at another time. This highlights the importance of having quick access to a vast range of lenders in order to secure the cheapest and best boat loan.
Opinions, Predictions and Policy
So what’s going to happen with interest rates? There is no question that interest rates will go up at some stage. But as we said, exactly when depends who you listen to. The RBA Governor Philip Lowe has consistently held to a timeframe of 2024 before economic conditions would be suited to raise the official cash rate. The RBA focuses on inflation, unemployment and wages growth as key indicators.
But commentary has been going on for a few months that rates should be increased to cool down the housing market. Housing prices have soared on the back of the low interest rate situation. Some economists and commentators have called for the RBA to move on rates to slow this down.
There are some voices predicting a rate rise before the next election, which is due by May 2022. Inflation has increased slightly in recent reporting periods, driven by consumers getting out of lockdown and spending. Unemployment was bouncing back well post the first stages of the pandemic. But took a hit as a result of the extended 2021 lockdowns in NSW and Victoria.
Some banks have already increased their fixed rate home loans before any increase in the cash rate has occurred. It must be kept in mind that lenders do source funds from overseas markets and their costs of funding will be impacted by rates in those countries.
Regardless of which commentary you are influenced by, watch the RBA decisions at their monthly board meetings for direction.
Avoiding a Rate Rise
When a rate rise does happen, lending rates across all markets typically increase and that includes the boat loan and marine finance market. There are considerations that those planning a boat loan should note:-
- Securing a boat loan at a fixed interest rate means the rate and the repayments won’t change during the fixed loan term.
- Secure a boat loan in the near future while rates are still at historic low levels in anticipation that they could increase at some time over the next few years.
- We offer boat loan terms of up to 7 years and by locking in a loan at the current low rates now, our customers are protected from any rise in rates during that loan terms.
So we didn’t specifically answer the ‘when’ part of the rate rise question, but hopefully this article will clarify the issue for you.
For a fixed interest rate boat loan, contact Jade Boat Loans on 1300 000 003
DISCLAIMER: THE INFORMATION AND SPECIFIC DETAILS CONTAINED IN THE CONTENT OF THIS ARTICLE HAVE BEEN PREPARED AND ARE PRESENTED PURELY AS GENERAL INFORMATION AND NOT INTENDED AS THE ONLY SOURCE OF FINANCIAL ADVICE FOR BOAT BUYERS AND LOAN BORROWERS. FOR THOSE THAT CONSIDER THEY REQUIRE SPECIFIC ADVICE, THEY SHOULD CONSULT WITH A FINANCIAL ADVISOR. LIABILITY IS NOT ACCEPTED IN REGARD TO ERRORS AND MIS-PRESENTED DATA AND DETAILS HEREIN.