Major blow for Aussies struggling with a mortgage as Reserve Bank makes interest rate announcement
The Reserve Bank has kept interest rates on hold at 3.60 per cent, delivering a fresh blow to Australians with mortgages after inflation came in hotter than expected.
All nine board members voted unanimously for a hold.
Borrowers will now have to wait until at least November for more relief, with stubbornly high inflation and a resilient labour market raising the possibility the RBA has already delivered its last rate cut.
Monthly inflation rose to three per cent in August, dashing faint hopes of a September cut.
Chartered Accountants ANZ chief economist Richard Holden said the central bank was being cautious as it weighs opposing forces in the economy, including rising inflation, soft economic growth and a robust labour market.
Since February, the Reserve Bank has lowered mortgage rates three times, trimming more than $270 from monthly repayments on an average $600,000 loan, following 75 basis points of cuts.
For someone with a $1 million mortgage, the relief is around $453 per month.
With rates on hold for now, Canstar.com.au data insights director, Sally Tindall said Aussies needed to shop around for a better rate.
Markets significantly repriced the odds for further rate reductions after last week’s consumer price index print, with only one more cut priced in this cycle ahead of the RBA’s announcement.
Ivan Colhoun, chief economist at CreditorWatch, said further reductions were unlikely this year.
‘Indeed, if these trends are sustained, then a further cut in interest rates before Christmas seems unlikely,’ he said.
‘While previous interest rate cuts have reduced some of the pressure, overall cost of living and cost of doing business pressures remain challenging.’
The Reserve Bank has kept interest rates on hold at 3.60 per cent, dealing a fresh blow to Australians with mortgages after inflation came in hotter than expected
But Tim Lawless, research director at property analytics firm Cotality, said the RBA was unlikely to put too much weight on the volatile monthly inflation figure.
He said the more reliable quarterly data due in October would be decisive at the November meeting.
A softer inflation reading could pave the way for further rate relief and a lift in home prices.
‘A further cut to interest rates is likely to provide additional support to housing demand from an increase in borrowing capacity and serviceability assessments, but also via higher consumer sentiment,’ he said.
While the chance of a cut is off the table for now, first-home buyers will get a separate boost on Wednesday.
The federal government’s expanded first-home buyer guarantee scheme, which allows eligible buyers to purchase with a five per cent deposit, will slash the time it takes to save for a home.
In Sydney, where the scheme’s property cap has been lifted to $1.5 million, a couple earning a combined disposable income of $123,674 could see their deposit-saving timeline fall from more than 10 years to under three.
Buyers in Melbourne and Brisbane will save around five years and nine months, while those in Adelaide will cut the hurdle by five years and seven months.
But there are downsides, Dr Powell said.
A smaller deposit means more debt overall, a higher risk of negative equity if prices fall, and extra demand that could push home prices higher.
Cotality head of research Eliza Owen said rising rental costs made the scheme more appealing despite the risks.
In Sydney, shaving six years off the time to save for a deposit would save a renter $251,000 in rent at the city’s median weekly rent of $801.
‘Even though a smaller deposit means paying more interest over time, it could still work out cheaper for renters,’ Ms Owen said.
