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

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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

Variable
More details
  • Min 30% deposit
  • No monthly or ongoing fees, add 0.10% for offset
  • Unlimited redraws

Variable Home Loan (LVR < 70%)

  • Min 30% deposit
  • No monthly or ongoing fees, add 0.10% for offset
  • Unlimited redraws
Variable
More details
REFINANCE ONLY
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
REFINANCE ONLY

Variable Rate Home Loan – Refinance Only

  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
Variable
More details
AN EASY DIGITAL APPLICATION
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
AN EASY DIGITAL APPLICATION

Neat Variable Home Loan (Principal and Interest) (LVR < 60%)

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
Variable
More details
NO ONGOING FEES
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
NO ONGOING FEES

Yard PAYG Home Loan (Principal and Interest) LVR ≤ 80%

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of August 14, 2022. 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. 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. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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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 strives to deliver and edit news and guides that are engaging, thought-provoking, and simple to read.

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