\u201cSo, when do you think interest rates will start to go up?...\u201d<\/p>\n\n\n\n
As mortgage and loan advisers, it\u2019s a question we get asked often, and one that is also playing on a lot of minds at the moment. While we don\u2019t necessarily have all the answers (or a crystal ball) we thought it might be useful to take a look at what the Reserve Bank of Australia (RBA) and leading economists are saying, translate that into language we can all understand, and do our very best to help you navigate these tricky times. <\/p>\n\n\n\n
Ready for some interest rate real talk? Grab yourself a cuppa (or something stronger) and let\u2019s get into it...<\/p>\n\n\n\n
In its most recent meeting on July 6, 2021, the RBA (who sets the cash rate) decided once again to hold steady at 0.10 per cent<\/a>, citing that it \u201cremains committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia.\u201d <\/p>\n\n\n\n Although the economy is performing better than expected<\/a> and unemployment took an unexpected turn<\/a> for the better despite the pandemic, wage growth is still looking a bit grim and many people and businesses are hurting financially. <\/p>\n\n\n\n While a pick-up in inflation and wages growth is expected, the RBA is forecasting it to be only gradual and modest and announced that there will be no increase to the cash rate<\/a> until actual inflation is sustainably within the 2 to 3 per cent range. So, when might that be? The RBA says it may not happen before 2024, so it\u2019s time for the economists to weigh in. <\/p>\n\n\n\n While almost all of the \u2018big four bank\u2019 economists agree that the cash rate won't be moving<\/a> in the next few months, or even the next year, they all agree that it will be moving sooner than the RBA is anticipating. Of course, they all seem to have slightly differing views on when the increase will actually begin, so, let\u2019s take a little look at some of their predictions.*<\/p>\n\n\n\n Commonwealth Bank Australia (CBA)<\/em><\/p>\n\n\n\n Coming in at the most economically optimistic, CBA is forecasting that the RBA will deliver it\u2019s first cash rate hike in November 2022<\/a>, with an increase of 15 basis points<\/a>, taking the cash rate to 0.25 per cent. They expect that to be followed by an increase of 25 basis points in December 2022, and another three 25-basis-point hikes in the first, second and third quarters of 2023. And they\u2019re the optimistic ones. <\/p>\n\n\n\n Westpac<\/em><\/p>\n\n\n\n Following CBA\u2019s lead, Westpac economists recently brought forward their interest rate rise predictions<\/a> to early 2023, after the unexpected fall in the unemployment rate to 5.1 per cent in June. However, they are predicting the increases will be a little smaller and more gradual than CBA. <\/p>\n\n\n\n ANZ<\/em><\/p>\n\n\n\n Economists at ANZ are forecasting wage growth<\/a> that will prompt the RBA to move sooner than anticipated and start increasing rates in the second half of 2023, taking it to 0.50 per cent by the end of that year.<\/p>\n\n\n\n NAB<\/em><\/p>\n\n\n\n While economists at NAB agree that the economy is in a much better position than expected, their predictions are perhaps the most closely aligned to the RBA in that they anticipate the cash rate will remain unchanged<\/a> until at least early 2024.<\/p>\n\n\n\n *Remember, while these predictions are educated guesses, they are still guesses. So, don\u2019t take any of them as gospel, ya know?<\/em><\/p>\n\n\n\n While almost all economists agree that the economy is faring better than expected, and that things are on the right track economically speaking, it\u2019s hard to see this translating into meaningful and tangible improvements in people's actual, everyday lives. When you consider the ongoing lockdowns in multiple Australian states, alongside a rather haphazard vaccine rollout (to put it mildly) it hardly seems a return to any sense of 'normalcy' is on the immediate horizon. With the situation surrounding our latest coronavirus outbreaks changing daily, predicting the movement of interest rates is as much an art as it is a science. <\/p>\n\n\n\n Speaking of lockdown, if you need it, here\u2019s our list of Updated COVID-19 financial support and resources, July 2021 \u2197\ufe0e<\/a><\/em><\/p>\n\n\n\n Thanks to a sustained period of low interest rates, there really has never been a \u2018cheaper\u2019 time to own property, from a loan perspective. <\/p>\n\n\n\n However, these historically low rates do not mean<\/em> that it\u2019s easy or cheap to *buy* property, and we have to be careful not to conflate the two.<\/a> In addition, as we\u2019re all painfully aware, the cash rate isn't a binding contract for banks<\/a>, and they can (and often do) set their own rates outside of the RBA\u2019s activity. <\/p>\n\n\n\n In regards to the housing market, the RBA had this to say<\/a>:<\/p>\n\n\n\n \u201cHousing markets have continued to strengthen, with prices rising in all major markets. <\/em>Housing credit growth<\/em><\/a> has picked up, with strong demand from owner-occupiers, including first-home buyers. There has also been increased borrowing by investors. Given the environment of rising housing prices and low interest rates, the Bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained.\u201d<\/em><\/p>\n\n\n\n Clear as mud? To put it more simply: when money is cheap to borrow i.e. interest rates are low, people can often afford to borrow more of it. So, while the money you borrow to buy a home right now might be \u2018cheap\u2019, the houses are not - particularly for first home buyers in capital cities<\/p>\n\n\n\n With the official cash rate<\/a> still hovering at 0.10 per cent, it really can\u2019t get that much lower (or can it?)<\/a>. So, inevitably, there will be a time when rates do begin to creep back up and mortgages\/borrowing money will become a little bit more expensive again. <\/p>\n\n\n\n But until we know when that is (remember a little art, a little science), let\u2019s unpack what the current state of affairs could mean for you, and what are some things you can do to navigate this period moving forward. <\/p>\n\n\n\n If you already have a mortgage<\/strong><\/p>\n\n\n\n While we can\u2019t know exactly<\/em> when rates will start to rise, the relatively good news is that when they do, the incline will likely be gradual and modest. Though we will take this moment to remind you also that, as we\u2019re all painfully aware, the cash rate isn't a binding contract for banks<\/a>, and they can (and often do) set their own rates outside of the RBA\u2019s activity. <\/p>\n\n\n\n With all that in mind, here are four things you can do to keep your loan costs as low as possible<\/a> through this next period (and any time, really)...<\/p>\n\n\n\n We love to say it, but: \u2018your home loan should never be set and forget.\u2019<\/a> When was the last time you reviewed your loan? If you can't remember, then we definitely recommend you make some time to do it now. A variable rate loan is a negotiable one, and it really can be as simple as contacting your bank and telling them you want a better deal. If that feels all a bit much right now, that\u2019s ok - get in touch, and we\u2019ll do it for you <\/a>(for free!)<\/p>\n\n\n\n If you\u2019ve got a fixed rate loan that you aren't happy with, or your bank didn't come to the party when you asked them for a better variable rate, it might be time for a change of scenery. And, by scenery, we mean bank or loan product. You might also want to use this as an opportunity to explore some lender options outside the \u2018big four\u2019 that have good rates and<\/em> are more in line with your ethics and values. If this sounds like you, and you\u2019d like some help, we are here to guide you.<\/a><\/p>\n\n\n\n You know the drill - if you\u2019ve got an offset account, chuck as much money in there as you can<\/a>. This is even more important while the cash rate is so low, because any money that you have sitting in a regular old bank account, is actually going backwards. So, why not put it to work offsetting your home loan interest? And remember, you can still easily access the money if you ever need to.<\/p>\n\n\n\n The beauty of a low interest rate period like the one we are experiencing now is that it\u2019s a fantastic time to make extra repayments, and build up a \u2018repayments buffer\u2019, if you can. Of course, considering we\u2019re living through a once-in-a-lifetime global health emergency, we understand not everyone will be able to do this. But, if you can, great! And if you can\u2019t, know that you are absolutely not alone and meeting your minimum loan repayments<\/a> in the current climate is still a really great position to be in.<\/p>\n\n\n\n If you\u2019re looking to buy a property<\/strong><\/p>\n\n\n\n While future rate rises may make your prospective home loan that little bit more expensive, the theory is that they could also have a bit of a cooling effect on the current market, which let\u2019s be honest, has been pretty piping hot. Though, just like interest rate fluctuations, property cycles are also notoriously hard to predict, and even more so right now. As our Managing Director Brendan says:<\/p>\n\n\n\n \u201cThe thing about property cycles is that, more often than not, a period of \u2018cooling\u2019 is only detectable after it has happened. So, I\u2019m of the belief that trying to time the market only leads to heartache. I'm also yet to come across anybody that has regretted their decision to invest in property sooner rather than later...\u201d <\/em><\/p>\n\n\n\n So, here\u2019s our two cents:<\/p>\n\n\n\n If<\/em> purchasing a property is a financial goal of yours, and<\/em> you\u2019ve done your finance homework, and<\/em> you\u2019ve got long-term plans in place to hold onto it - then now is as good a time as ever.<\/p>\n\n\n\n Other things you might like to consider doing if you\u2019re looking to buy a property:<\/p>\n\n\n\n We\u2019re probably a little bit biased, but working with a good mortgage adviser who knows their stuff can really save you in the long run. Remember, a bank can only offer you their own loan products, and if there is a better deal available to you from a different lender, they probably aren't going to tell you about it. But we can, and we will!<\/p>\n\n\n\n At both a state and federal level, governments have introduced a range of financial assistance schemes to assist eligible first-home buyers to get into the property market. In fact, here\u2019s our nifty round-up of them all!<\/a> Knowing exactly what you\u2019re eligible for can help you save on some of the costs associated with buying your first property, so it quite literally \u2018pays\u2019 to know what\u2019s out there.<\/p>\n\n\n\n While using a buyer's agent isn't right for everyone, for some there can be distinct benefits in engaging one, especially if you\u2019re looking to buy in a highly competitive market like Sydney or Melbourne. A good buyer's agent has the potential to save you a lot of heartache and stress, and their keen negotiating skills can often help you secure that dream property for less. And securing a property for less means a smaller (and cheaper!) loan.<\/p>\n\n\n\n To fix or not to fix - the other question we often get asked! It\u2019s a damn good one, and we think it\u2019s always best to look at whether or not to fix your home loan through a more holistic lens, rather than as a bid to try and beat the banks on rates. We\u2019ve written about this before<\/a> but, if there was ever a time to make a compelling case for fixed rate loans, now would probably be it. <\/p>\n\n\n\n If you are thinking of fixing your loan, here are a couple of things to consider:<\/p>\n\n\n\n Fixed loans aren't known for their flexible qualities, and oftentimes, you won't be able to make extra repayments, use an offset account<\/a>, or break the fixed term without incurring some kind of fee.<\/p>\n\n\n\n This is obviously a tricky one, and is probably more relevant for people who are thinking of locking in a lengthier fixed period (3-5 years). A lot can happen in one year (#pandemic) let alone three to five, and you could find yourself facing some pretty big costs if you have to break your fixed loan<\/a> because you\u2019ve decided to sell your property before the fixed period is over.<\/p>\n\n\n\n Turns out that little girl from the Old El Paso ads was onto something - because choosing to have both a fixed and<\/em> a variable portion of your loan can be a great way to get the best of both worlds. You can even choose how much of each you\u2019d like to have i.e. 60% variable with 40% fixed, or vice versa. The choice is yours!<\/p>\n\n\n\n The decision to fix your home loan isn't one that should be made on a whim, though in certain circumstances, there can undoubtedly be benefits. If having certainty around your loan repayments is important to you, and it\u2019s something that will give you peace of mind during the next few years, then now would be a great time to have a chat with a mortgage adviser that you trust about your fixed rate options.<\/p>\n\n\n\n It\u2019s all about making sure you\u2019re across the fine print, you\u2019ve weighed up your options, and you're making a decision based on what\u2019s right for you<\/em>.<\/p>\n\n\n\n Just think about how much has already changed since the last meeting of the RBA on July 6, and it\u2019s anyone\u2019s guess what else will happen before they meet again. Ongoing and future lockdowns may very well throw a spanner in the country's economic works and so, we\u2019ll be keeping our ears to the ground for any changes likely to affect your loans in the weeks and months to come. <\/p>\n\n\n\n Because while it is a fool's game to predict with any great certainty whether rates are going to drop, stay the same or steadily climb, interest rate real talk is the kind that will stand you in good stead no matter what happens next. <\/p>\n\n\n\n And, as always, if it\u2019s all a bit much (and let\u2019s be honest, it probably is right now), drop us a line for a chat!<\/a> It\u2019s what we\u2019re here for, and what we do best. <\/p>\n\n\n\nWhat are the economists saying?<\/h2>\n\n\n\n
What does all this mean for the property market?<\/h2>\n\n\n\n
What does this mean for you?<\/h2>\n\n\n\n
Lastly, is it time to \u2018fix\u2019?<\/h2>\n\n\n\n
Real talk that stands the test of time<\/h2>\n\n\n\n