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Fifteen lenders have cut interest rates on fixed and variable home loan products for new customers, signalling increased confidence that the Reserve Bank of Australia’s (RBA) rate hiking cycle may be over.
Mozo’s analysis of lenders in their database indicates shows that some banks are already positioning themselves for an era of lower interest rates, with some offering cuts of up to 0.50% on various loan products. While the RBA has yet to reduce the cash rate, the actions of these lenders are a strong indicator that the tide is turning.
Lenders, including ING, Ubank, Macquarie and Bankwest have made rate cuts across fixed and variable home loans for both owner-occupiers and investor products.
For borrowers, this is a welcome sign. Home loan rates have increased significantly since May 2022, putting immense pressure on homeowners and first-home buyers alike. But as banks start cutting rates, we could be seeing the first signs of relief for those with new fixed-rate or variable-rate mortgages.
Pressure on Prices Continues to Rise
Even with lenders beginning to lower fixed and variable rates, many Australians are still facing significantly higher repayments than they were just a few years ago.
Mozo’s analysis of ABS data revealed, “the national average home loan size for owner-occupiers has jumped from $447,829 in 2019 to $640,998 in 2024, a difference of $193,169 in just five years.” This increase in loan sizes is contributing to the financial strain felt by borrowers across the country.
So How Much More Are Aussies Paying?
Mozo crunched the numbers to find out how much more homeowners are paying in monthly repayments compared to five years ago. Using the average loan size for owner-occupiers in 2019 and 2024, along with average variable rates from the Mozo database, they found that repayments have skyrocketed.
In July 2019, the average variable rate for owner-occupiers paying principal and interest with an 80% Loan-to-Value Ratio (LVR) was 3.92%.
Source: ABS Lending Indicators, Mozo.
Fast forward to July 2024, and that rate has ballooned to 6.79%. With loan sizes increasing, Aussies are now paying potentially $2,101 more each month on their mortgages than they were just five years ago. This is based on a 25-year loan term for an owner-occupier paying principal and interest.
Rachel Wastell, Mozo’s personal finance expert, sums up the situation: “These figures highlight the growing burden on borrowers as property prices continue to rise across the country, and the pressure this is having on household budgets, consumer spending, and as a result, economic growth.”
The Supply Problem
Mark Bouris says these headline figures are only part of a number of challenges in Australia’s housing market.
“With Australia’s construction sector in meltdown, it’s hard to see the supply of housing increase in any meaningful way any time soon,” he explained.
Bouris noted that the supply shortage is compounded by strong population growth, driven by “mass migration”, which continues to fuel demand for property. This high demand, combined with limited new housing, means prices are unlikely to drop significantly anytime soon.
“Don’t expect any supply-led solution to the housing affordability crisis,” Bouris said.
The biggest risk, Bouris argues, lies with the RBA itself. If the RBA were to continue hiking interest rates, some mortgage holders could be forced to sell, flooding the market with properties and triggering a potential “panic”. However, Bouris believes the RBA will be cautious to avoid this scenario. “The Reserve Bank won’t want to be blamed for that,” he stated.
Instead, Bouris predicts that the RBA will “continue trying to walk the line between going too far – and going too light on inflation control.”
This means that we can expect rates to remain on hold for a while, as the RBA weighs up its next move.
“And meanwhile, property prices will continue to rise slightly – or stagnate.”
Five Tips to Get Ahead
The property market is constantly fluctuating, as is the competitive nature of the home loan market. It’s essential to approach these opportunities with careful consideration and expert guidance. Here are five tips to get started:
- Assess your financial position
- Explore different property types
- Compare lenders and loan products
- Stay informed about local market trends
- Speak to the experts
Our team of experienced mortgage brokers is here to provide solutions and choice on your home loan journey. Contact us today to explore the options best suited to your unique needs.
