RBA raises cash rate a third time

July 05, 2022

At its July monetary policy meeting, the Reserve Bank of Australia (RBA) again raised the nation’s official cash rate by 50 basis points to 1.35%.

Speaking about the decision, Mortgage Choice National Sales Director David Zammit said, “While today's cash rate increase from the Reserve Bank was widely expected by the market, Australian households will now be cautiously waiting to see how our nation’s lenders respond, especially as most lenders have already substantially increased rates on variable and fixed rate home loans.”

“In a changing rate environment, it’s particularly important to have someone proactively managing your home loan to ensure you’re not paying more than you need to be. Now is the time to speak to your broker and find out if you could be getting a better rate.”

Mortgage Choice loan submission data reveals an uptick in refinancing activity since the Reserve Bank delivered its first cash rate hike in May. 38% of loans submitted in April were for refinancing, this has grown steadily to 43% in June. Loan submission data also shows that demand for fixed rate home loans is at the lowest level in the past two years, with just 7% of loans submitted having a fixed component, a stark contrast to a year ago when 40% of loans submitted had a fixed component.

Mr Zammit said, “Market assumptions that interest rates will rise at a rapid pace over an extended period of time has meant that fixed rates have accelerated far higher and quicker than variable rates.”

PropTrack Economist, Eleanor Creagh said, “A consecutive 50bp hike at today’s meeting has reaffirmed…the RBA’s desire to ‘get ahead of the curve’, hiking more aggressively in a bid to tame inflation."

“As interest rates have risen, home price growth has slowed Australia-wide and prices have quickly begun to fall in some regions. Housing affordability will continue to decline as repayments become more expensive with rising interest rates.

The PropTrack Home Price Index shows national prices continued to fall in June and I expect a further downturn in prices in the period ahead."

“But I think it is important to put that in context, we have seen extraordinary growth in housing prices over the last two years, with home prices up 34% on pre-pandemic levels,” said Ms Creagh.

New data reveals the dampening effect the rising interest rate environment is having on the nation’s housing market. The PropTrack Home Index July 2022 showed widespread falls in home prices in June, with Sydney and Melbourne down more than 1.5% from their peak. National prices fell 0.25% over June – these slowing conditions mark the sharpest slowdown in prices in more than 30 years.

Lending indicators data from the Australian Bureau of Statistics (ABS) revealed that over May, the value of new housing loan commitments rose 1.7%. The number of new loan commitments for first home buyers in May was 31.6% lower compared to a year ago.

Mr Zammit said, “First home buyers have certainly retreated from the market and in Sydney, Mortgage Choice brokers are reporting that many first home buyers have put their plans on hold while they wait for more details about the New South Wales government’s Stamp Duty changes. That said, the Federal Government’s addition of 40,000 new places to the Home Guarantee Scheme should help boost confidence among cautious first-time buyers."

“I encourage anyone looking to buy their first home in the coming months to meet with a broker to understand which government schemes and incentives they may be eligible for. Navigating the support available, getting your finances in order and applying for your first home loan can feel overwhelming, but an experienced mortgage broker can remove the complexity from the process and give you confidence you’re getting the best rate."

“Looking ahead, Australians can expect home loan interest rates to rise further as the Reserve Bank continues to normalise the cash rate,” continued Mr Zammit. “I encourage borrowers to get ahead of the next rate hike and speak to their mortgage broker to ensure they’re on the best loan they can access,” said Mr Zammit.