The Reserve Bank of Australia has decided to pause and keep the cash rate unchanged at 4.10% for July, after figures were released last week showing inflation had eased.
After 13 rate hikes since May 2022, the RBA decided to pause rates because the higher interest rates are working to “establish a more sustainable balance between supply and demand in the economy” and “will continue to do so”.
RBA governor Phillip Lowe said in light of this and the uncertainty surrounding the economic outlook, the Board decided to hold interest rates steady this month.
“This will provide some time to assess the impact of the increase in interest rates to date and the economic outlook,” Lowe said. “Inflation in Australia has passed its peak and the monthly CPI indicator for May showed a further decline. But inflation is still too high and will remain so for some time yet.”
Last week’s monthly inflation of 5.6% broke the trend of annual inflation rising after it climbed from 6.3% in March to 6.8% in April, according to the latest data from the Australian Bureau of Statistics.
The RBA’s decision today follows its move in June to lift the cash rate by 25 basis points.
How the RBA decision will affect brokers’ clients
Maryanne Elliott (pictured above centre), a Queensland-based mortgage broker for 360 Mortgage Solutions, said while the pause would hold borrowing power for pre-approvals, it “won’t change anything else”, and clients would still need to “plan for the worst and hope for the best”.
Elliott said she had started to see a rise in first home buyers before the RBA’s decision.
“I am still getting clients sign contracts, although the purchases are much cheaper than 12 months ago,” Elliott said. “It’s predominately first home buyers rather than subsequent buyers so it is great to see them getting in the market.”
“The first home buyers now don’t know the joys of a 1.89% interest rate, so they are more open to what the current market is, rather than existing clients who feel the pain more because they are accustomed to cheaper money.”
The news is welcome relief for mortgage holders after research commissioned by Aussie found almost 23% of homebuyers are using more than half of their income to pay their mortgage, while a staggering 11% are using more than 70% of their total income to pay their monthly home loan.
Mortgage broker and director of InvestorFi Wayne Hedley (pictured above left) said while the RBA’s decision was good news, the previous increases had reduced his clients’ borrowing capacity and he did not expect any moves in the market.
“Lenders would cop some backlash if they were to move out of the cycle of the RBA,” Hedley said.
Hedley said he was thankful that some lenders had introduced lower serviceability buffers for refinances – this allowed some clients to move away from lower-tier lenders to mainstream lenders and save on interest costs.
“These have come about in the last few months to assist clients that are in a ‘mortgage prison’ with their current lender,” Hedley said. “We are still seeing opportunistic buyers take advantage of the markets who are in a good serviceability position still with strong income and having healthy buffers post-purchase.”
But Hedley said this was not the end of rate rises – it was a temporary pause with inflation still above the RBA’s target range.
“My educated assessment would be another one to three rises and a hold after this for some months.”
Private lender reacts
Peter Cuskelly (pictured above right) is the managing director of Private Mortgages Australia, which specialises in providing flexible short-term finance for businesses and property developers. Cuskelly expects one or two more rate hikes this year.
“Because of our fixed rates we expect borrowers to want to move to settlement as quickly as they can in order to lock in the lower interest rate for the term of their loan,” said Cuskelly.
Private Mortgages Australia provides loans from $100,000 to $5 million with loan terms of three to 36 months.
Cuskelly said he expected alternative lenders would continue to be popular with small business or developers who “continued to have difficulty” demonstrating servicing to the banks’ standard requirements with historical financials.
“The property market appears to remain propped up by limited number of properties being offered for sale. The full impact of rate rises and inflation is still to be seen and any influx of sellers could see prices dip below current levels in short to medium term,” Cuskelly said.
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