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The Reserve Bank of Australia (‘RBA’) has announced another 0.5% raise in the official cash rate, increasing the rate to 2.35%.
What does this mean for borrowers?
Say for example your home loan interest rate were to increase from 4.0% to 4.5%, you would experience an increase of $29.27 per month, per $100,000 borrowed, in terms of minimum monthly repayments over a 30 year loan term. For example:
- Repayment increase on a $400,000 loan = $117.08
- Repayment increase on a $600,000 loan = $175.62
- Repayment increase on a $800,000 loan = $234.16
“Pay attention to what they say”
For Stephen Koukoulas, the “most interesting” part of the first Tuesday of every month is not exactly what the RBA does with the official cash rate, but rather “what they say” in their press release.
“They always put out a press release saying ‘we’ve hiked interest rates, and here are the reasons’. I’m going to go over that press release with a very fine tooth comb, because I think they’re detecting inflation pressures are starting to come off a bit.”
“Maybe the effect of softening house prices is having an effect on consumer sentiment. We know consumer sentiments right down low. And the rate hikes themselves are having an effect on consumer sentiment.”
“If they start to paint a picture that ‘we’ve done a lot, we might not quite be at the endpoint, but we’re getting close.’ Then all of a sudden, there’ll be a bit of a sigh of relief that this interest rate hiking cycle will be near the end rather than the beginning.”
What exactly did the RBA say?
In their press release announcing the rate rise, RBA Governor Phillip Lowe said: “The Australian economy is continuing to grow solidly and national income is being boosted by a record level of the terms of trade.”
“An important source of uncertainty continues to be the behaviour of household spending. Higher inflation and higher interest rates are putting pressure on household budgets, with the full effects of higher interest rates yet to be felt in mortgage payments.”
“Consumer confidence has also fallen and housing prices are declining in most markets after the earlier large increases. Working in the other direction, people are finding jobs, gaining more hours of work and receiving higher wages. Many households have also built up large financial buffers and the saving rate remains higher than it was before the pandemic. The Board will be paying close attention to how these various factors balance out as it assesses the appropriate setting of monetary policy.”
The RBA expects this latest rate rise to help bring inflation back down between 2-3% into next year and “create a more sustainable balance of demand and supply in the Australian economy.”
Will there be further rate rises?
At the end of the day, the RBA will continue to adjust the official cash rate depending on the data that they receive over the course of each month.
On whether there will be further rate hikes, the RBA said: “The size and timing of future interest rate increases will be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market. The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”
Interest rate rise coincides with enormous decline in home values
Australian home values in August had their biggest monthly decline since 1983, according to CoreLogic’s national Home Value Index (HVI). CoreLogic reported that Australian home values recorded a fourth consecutive month of decline, down -1.6% over August, meaning the national index recorded the biggest month-on-month decline in almost four decades.
Core Logic said: “Every capital city apart from Darwin is now in a housing downturn while across the regions, only regional South Australia recorded an increase in housing values for the month.”
“Sydney continued to lead the downswing, with values falling -2.3% over the month and Brisbane also showed weaker conditions with sharp monthly falls of -1.8%.”
Opportunities for Investors, difficulties for renters
According to CoreLogic, annual national rental growth hit a record high of 10% in August. There are several reasons for the high growth.
First, there’s a lack of supply in the rental market, with the number of listings about 40% lower than their pre-pandemic level.
There’s also upward pressure on rental prices following the return of international students to our universities. The situation is only set to get worse.
CoreLogic stated that “as overseas migration normalises, it is likely rental demand will increase further. Without any signs of a material rise in rental supply, the outlook for rents remains one of further growth.”
How can we help?
Depending on your circumstances, there can be a number of ways in which chatting to a mortgage broker can help you in your home loan journey. Whether it is refinancing, searching and applying for the most competitive home loan, debt consolidating or simply empowering you with the knowledge and guidance you need to manage your home loan repayments in a difficult environment, our YBR Home Loans Mortgage Brokers are best placed to support you and your circumstances.
Having a conversation with our Mortgage Brokers costs you nothing, and, as our Branch Principal of YBR Miranda, Joshua Kellet said, “In uncertain times, the first step in reducing that uncertainty is to understand what your current situation is and take as much control of it as you can.”
“So, logon to your internet banking to find out what your current interest rate is and then speak to an expert at YBR to understand if there is something better out there for you – you’d be surprised at the meaningful benefit that this critical first step can lead to with respect to your monthly budget.”
“What’s the worst thing that can happen to you? You’ll find out that you have indeed got a good, competitive rate and by doing that, and nothing more, you would have eliminated some of the uncertainty you may have been dealing with and gained some peace of mind.”