Fact Checked
July Home Loan Market Update
It’s set to be a happy start to the new financial year for mortgage-holders, with the RBA widely expected to cut the cash rate by a further 0.25%.
The economic eggheads at each of the big four banks (CommBank, Westpac, NAB and ANZ) are all in agreement that the cash rate will fall to 3.60% on the 8th of July.
Meanwhile, financial markets have fully priced-in a cut this month, with the ASX RBA Rate Indicator putting expectations at 100% (as at 2 July).
Of course, nothing’s ever a certainty when it comes to the RBA - its Governor, Michelle Bullock, could well play party-pooper if she deems there’s not enough data to support the case for a cut.
But assuming the cut goes ahead, the average owner occupier home loan rate would likely fall to 5.50% p.a.
On the average $660,000 30-year home loan, that would see the minimum monthly repayment drop by about $100, saving the typical household $1,200 a year.
Tallied up with the February and May rate cuts, it’d be a saving of more than $300 per month, or $3,600 per year.
Sounds great, until you remember that even after those cuts, the typical household would still be paying $1,300 more per month than if they were on one of those 2% p.a. rates lenders were offering back in 2021. What a time that was!
Meanwhile, fixed rates continue to be cut as lenders price in the higher odds of further rate cuts in the future. Early this month, we saw ANZ cut fixed rates by up to 35 basis points.
We’re now starting to see 2- and 3-year fixed home loan rates that start with a ‘four’, with Regional Australia Bank, Bank Vic and Greater Bank recently joining the sub-4% club.
But with the RBA expected to drop the cash rate three to four more times over the next six months, it mightn’t be long until the typical variable rate starts with a ‘four’ - so think twice before you lock in.
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Home Loan Interest Rates in Australia
Like many other developed countries, interest rates in Australia are much higher now than they were during the pandemic, when many lenders were offering home loans for under 2.00% p.a.
Interest rates on home loans have generally followed the trajectory of the cash rate, which is set by the Reserve Bank of Australia (RBA). As the cash rate is increased, rates on loan products typically also increase, and the same relationship applies when the RBA cut rates. From April 2022 to November 2023, the cash rate went from 0.10% to 4.35%, which is the main reason why home loan rates went up so much. Forecasts on the future direction of the cash rate are mixed, with the RBA decisions largely dependent on economic factors such as inflation and unemployment.
Rate increases are not good news for borrowers, but good news for debt-free savers - vice versa for rate decreases.
Lenders tend not to waste any time in passing on the RBA's cash rate rises to mortgage rates, but some are offering much lower rates than others so there are still savings to be had.
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