Australia’s official interest rate is now 3.60% after the Reserve Bank of Australia increased it by 25 basis points during its March monetary policy meeting.
With most lenders quick to pass on every cash rate rise, the RBA’s latest move means the average borrower with a $500,000 mortgage with 25 years remaining will see their monthly repayments rise by another $77, according to RateCity calculations. This, in turn, will take their total increase since April 2022 to $983
Unfortunately, it’s likely the cash rate will rise further still, with the RBA recently warning in March that it expects that “further tightening of monetary policy will be needed to ensure that inflation returns to target”.
That said, the annual inflation rate eased in January to 7.4% from 8.4% in December, according to the Australian Bureau of Statistics.
With this raising hopes that inflation has peaked, you might be wondering what’s in store for the cash rate.
Is interest rate relief on its way?
The RBA’s recent ‘hawkish’ approach hasn’t gone unnoticed, with both Westpac and ANZ upwardly revising their cash rate forecasts to a new peak of 4.10%. As such, there are likely to be more rate increases to come.
But in good news, Westpac’s chief economist, Bill Evans, believes this will be followed by seven interest rate cuts during 2024 and 2025 to bring the cash rate back down to 2.35% by September 2025.
“At 4.10%, the cash rate will be in deeply contractionary territory and a pause will be appropriate. The decision to pause will be with a reasonable view that the tightening cycle has peaked. Westpac concurs and expects that the next move in rates beyond mid-2023 will be the beginning of an easing cycle in the March quarter 2024,” he said.
“Over the course of 2024 and 2025, we see 175 basis points of cuts to a low of 2.35% where the cash rate is expected to settle, with growth at trend and inflation at the top of the 2-3% year range.”
What does this mean for property prices?
With a couple more interest rate rises left to go, there will likely be more downward pressure on property prices as homebuyers’ borrowing capacity diminishes.
That said, there has been a lack of stock on the market in recent months with CoreLogic reporting a below-average flow of new listings since September last year.
As the graphs below show, this has seen the total volume of capital city listings drop to 143,500 in February, which is 26.3% lower than the previous five-year average for this time of year.
Low stock levels have, in turn, kept a lid on price declines – with CoreLogic’s national home value index only dropping 0.1% in February, the smallest monthly fall since May 2022 when the rate hikes began.
What’s more, Sydney’s property prices actually grew 0.3% over the month, their first increase since January 2022.
Australia’s home loan wars heat up
With home loan interest rates on the rise. Australian borrowers are refinancing at record levels as they look for a better deal on their mortgage, according to PEXA.
PEXA’s data shows that there were more than 378,000 refinances recorded in New South Wales, Victoria, Queensland and Western Australia over the 2022 calendar year, up 11.4% year-on-year.
But while refinancing activity peaked, the number of new loans taken out over the year fell 12.8% on 2021 levels, with just over 502,000 new loans being recorded across the four states.
Why is this important?
Because one of the few ways lenders can currently grow their loan books is by tempting customers away from their rivals. This intense competition means some lenders are aggressively discounting their rates and offering cashback deals and other incentives for new borrowers.
Sleep Soundly Promise
You don’t need to worry about switching to a great rate now, only for it to become less competitive in the future – thanks to Shore Financial’s Sleep Soundly Promise.
Our Sleep Soundly Promise is a free annual review of your loan, to make sure it always remains suitable.
People’s lives change all the time; as does the mortgage market. So just because your loan is a great fit for you today, doesn’t mean there won’t be a better alternative in the future. If there is, we’ll tell you.
Need a home loan? Whether you are a first home buyer, property investor or looking to refinance to a lower rate, Shore Financial can help. To discuss your options, call us on 1300 416 700, email us on info@shorefinancial.come.au or fill in this online form.
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