Don’t borrow too much ‘cheap’ cash: financial adviser
FEDERAL Treasurer Joe Hockey may be urging Australian households and businesses to borrow and invest money following the Reserve Bank's decision to cut the cash rate to a record low two percent, but at least one financial adviser has urged caution.
Kirk Jarrott of Poole and Partners yesterday said money was the cheapest it has ever been in Australia but that should not be a signal for people to get themselves into more debt.
He said the cycle would eventually turn.
Will you be taking advantage of the record low interest rate?
This poll ended on 14 August 2015.
Yes, I'm going to buy another property
No, I'll sit tight and enjoy the low repayments
Another house? I can't even afford one!
This is not a scientific poll. The results reflect only the opinions of those who chose to participate.
"Consumers should be pulling in their personal budgets and getting debt down as fast as possible," Mr Jarrott said.
"I'm debt adverse," Mr Jarrott said.
"If you intend to borrow look at your personal finance first. If you owe zero on your home loan you may be in a position to do a bit.
"I have people tell me they have $50,000 to invest but when they tell me the size of their home loan I say to put the money into that."
He was also cautious about people locking into fixed rates, saying banks promoted fixing loans to a certain higher rate as a means of protecting their own margins.
He said borrowers should be wary that if the economy expanded or if inflation concerned the RBA it could rapidly increase rates over as little as 18 months.
The cut in rates has been an attempt by the RBA to stimulate business and con
sumers to get the economy going following the slowdown in China, the fall in iron ore prices and other broader economic events.
"Those who borrow more now where there is no return can become exposed like in 2006-07 where we saw forced sellers," Mr Poole said. "You need a margin of safety to ensure you are not over exposed to the stock market or real estate if prices fall."
Bankers who spoke to the Daily said there had been a plunge in confidence since last August which had seen a fall in lending demand.
The situation has improved gradually with the "fall over" rate for businesses failing down and lending now steady.
WHAT YOU SAVE
$300,000, 30-year principal and interest loan interest savings $61 a month or $732 a year
0.25% cash rate cut reduces monthly payment from $1556 to $1512