COVID-19 clearly has a mind and intentions all of its own. But when an outbreak occurs and subsequent restrictions come into force, many experts, both health and economic, speak their own minds in regard to the effect it will have on various sectors and aspects of the community. For those with loans and those planning to take on say a boat loan, it’s only natural that their mind would turn to the impact of lockdowns on interest rates.
With approximately 12 million Australians in the country’s two largest economic centres currently under lockdown orders, there is sure to be a significant economic impact. Specifically, how might the extended lockdown in NSW and possibly Victoria at the same time affect loans and interest rates? With respect to all the experts, we lay out some of the principles and indicators that determine boat loan interest rates and the possible impacts on current and future boat loan holders.
The Reserve Bank of Australia (RBA) is the body tasked with establishing the base interest rate, known as the official cash rate. This forms the foundation from which banks and lenders establish their interest rates for both lending and savings. The RBA reduced the official cash rate during 2020 as a stimulus measure and has left the rate at the current low of 0.1% since November 2020.
The RBA Board meets each month to discuss and make a decision on interest rates. In recent months, the message has been the same – the RBA is waiting for inflation to reach a sustained 2-3% and unemployment in a sustained sub 5% range before considering raising interest rates.
Currently, inflation is in the 1% range but unemployment figures have bucked forecasts and continued in a downward trajectory in recent reporting periods.
The Unemployment Effect
Unemployment is a major driver for interest rate decisions and in the last reporting period unemployment reached 4.9%. This is the lowest level in over a decade and would normally be received with much celebration by the Government. But coming in a week when NSW was in a lockdown and a COVID-19 outbreak emerging in Victoria, the Treasurer Josh Frydenberg was much more subdued when commenting on the figures.
Some economists are predicting that if there is an increase in unemployment in NSW due to the current situation, this may delay any rises to rates by RBA. The RBA Governor Philip Lowe had recently reiterated his forecast for rates not to rise prior to 2024, despite soaring house prices and calls for rate rises to quell the hot property market.
With stricter lockdown conditions placed on some areas of Sydney and a pause on construction work, the possibility of job losses is very real. However, the support package for businesses put in place jointly by the Federal and NSW Governments is subject to the businesses receiving the relief payments retaining their employment levels.
While unemployment is significant to RBA interest rate decisions so is inflation. With wages growth stubbornly subdued, inflation is also subdued. While both are expected to show a lift any increases are expected to be subdued.
The next meeting of the RBA Board regarding interest rates is scheduled for the first Tuesday in August, just days after the currently scheduled lifting of the NSW lockdown on 30 July. Many doubt that the deadline will be adhered to. Dr Lowe has repeatedly said the Bank is not looking at going into ‘negative territory’ with interest rates, so a further cut as any form of stimulus measure is extremely unlikely. It is more likely that for the time being at least, current rates will remain on hold.
Existing Boat Loans
For those that currently have a boat loan, the lockdown restrictions will likely impact your ability to enjoy your boat but not your boat loan. Boat loans that are secured with a fixed interest rate will remain steady and constant over the full, agreed term of the loan. Any changes to economic conditions and/or interest rates by the central bank or lenders will not affect fixed-rate loan contracts.
For borrowers that are personally impacted by outbreaks, stay at home orders and other restrictions and are facing financial issues meeting their repayment commitments, they should contact their lender. Banks and lenders have announced relief measures for borrowers and income support is also available through government channels.
Fixed Interest Rate Boat Loans
For those looking to proceed with the boat purchasing plans during any lockdown restriction periods, our team is readily available to assist with finance. You may even find that fewer people may be seeking loans which could make for greater competition in the lending market. That could mean more opportunities for your Jade consultant to negotiate a better deal on your boat loan.
All our boat loans – both personal and business, are arranged with a fixed interest rate. You can review the current low boat loan interest rates on our table. These rates would not be impacted directly as a result of outbreaks and lockdowns. But all our loans are quoted based on individual requirements and applications. Speak with one of our boat loan consultants about a specifically tailored solution for your requirements.
To discuss marine finance, contact 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 MISPRESENTED DATA AND DETAILS HEREIN.