Fewer than 1 in 6 Australians expect interest rates to fall in 2020

author-avatar By on February 13, 2020
Fewer than 1 in 6 Australians expect interest rates to fall in 2020

Photo by Max Bender on Unsplash

Fewer consumers expect mortgage interest rates to go lower in 2020, despite what many economists are saying.

According to the Westpac-Melbourne Institute Index of Consumer Sentiment for February, only 16% of Australian adults think rates will fall over the year.

This is at odds with institutional economists' forecasts, with most predicting the Reserve Bank of Australia (RBA) will rate cut to 0.50% in April.

The figure is even lower than what it was in August 2019 when 22% expected rate cuts over the next year. 

The report also showed overall sentiment among Australian consumers rose 2.3% from 93.4 in January to 95.5 in February.

Despite the uptick on the month, the Index remains well below the 'long run' average of 101.4, where a reading below 100 indicates pessimists outnumber optimists. 

Compared to a year ago, overall sentiment is down 8% - 103.8 in February 2019, compared to 95.5 in February 2020.

The report outlined several reasons for the pessimistic outlook, with bushfires, family finances, and the housing sentiment as major drivers.

Miserable Millennials

Overall sentiment among 18-24 year olds'  fell by 5.2% in February while 25-44 year olds' sentiment fell by 5.5%, at 21 month and 2.5 year lows respectively. 

This is a phenomenon the CommSec has termed the 'Miserable Millennials'.

"The ‘smashed avocado’ generation aren’t happy," CommSec senior economist Ryan Felsman said.

"Altered aspirations around housing affordability could be a key factor."

Aussie consumers’ house price expectations rose to the highest level since March 2017, up 73% from a year ago in February.

"The impact on first home buyer loan demand - currently representing a very healthy percentage of all owner occupier commitments (excluding refinancing) in December - will be something to watch as home prices continue to surge in the big cities," Mr Felsman said. 

Meanwhile, the 'right time to buy' a home sub-index fell 5.6% to 112.1, reflecting the recent surge in house prices around the country. 

In December 2019, home loan lending accelerated to its highest level since July 2018, with the monthly value of new home loan approvals rising 4.4%. 

After three RBA rate cuts in the second half of 2019, the value of home loan lending soared 20.7% from May 2019, driven mostly by owner-occupier lending (up 22.8%).

The value of lending to first home buyers in December was up 38% on the year.

What does all this mean for the overall economy?

Consumer confidence is a major driver in the overall economy, and can affect spending habits and overall home ownership participation - a major part of the Australian economy.

Mr Felsman said consumers remain cautious. 

"Negative newsflow around the bushfires, floods and Novel Coronavirus are adding to long-standing worries about the economy, household finances and job security," Mr Felsman said. 

"The Aussie dollar hit 11-year lows this week - perhaps weighing on overseas travel plans."

This is despite overseas debit card spending hitting historic highs in December, even after accounting for the holiday season busy period.

The Westpac-Melbourne Institute Index of Consumer Sentiment report is released every month, and was first undertaken in 1973 as a quarterly survey. 

The table below displays a selection of variable-rate home loans with some of the lowest interest rates on the market.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval

VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
VariableMore details
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^

Rates correct as of October 27, 2021. View disclaimer.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Harrison is Savings.com.au's Assistant Editor. Prior to joining Savings in January 2020, he worked for some of Australia's largest comparison sites and media organisations. With a keen interest in the economy, housing policy, and personal finance, Harrison is passionate about breaking down complex financial topics for the everyday consumer.

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