Fact Checked
April Home Loan Market Update
The RBA may have chosen to keep the cash rate steady earlier this month, but had the board met a week later it's almost certain there would have been another cut.
The US President's 'Liberation Day' tariffs sparked a panic at the dollar disco, with financial markets plummeting as investors priced-in the heightened risk of a global trade war. And while the tariffs on Australia were relatively small, some of Australia's biggest customers (e.g. China) have been whacked hard, putting our lucrative export industries at risk. It could be enough for Australia to slip into a full-blown recession, which is why some (such as NAB's economics team) are now expecting a 50 basis point (0.50%) cash rate cut in May.
The RBA board may be kicking themselves for not cutting this month, especially given the next monetary policy decision isn't until May 20 - a lot can happen between now and then, not to mention a federal election! Perhaps that's why there have been rumours about the potential for an 'emergency' rate cut (i.e. the RBA lowering the cash rate before it's next scheduled meeting) in the coming weeks, which hasn't occurred since the onset of the pandemic in March 2020. RBA Governor Michelle Bullock is reported to have had an unscheduled meeting with Treasurer Jim Chalmers, so naturally there's speculation that an emergency cut was discussed - to be a fly on that wall!
If bonds are anything to go by, investors are clearly anticipating imminent rate cuts, with yields plummeting amid the market mayhem. Naturally, this has led several lenders to make large cuts to fixed home loan rates, which are now as low as 5.14% p.a. Some have lowered variable rates too, although not to the same extent.
Home loan holders may be cheering on the prospect of fast and deep cash rate cuts, but I can't help but feel many lenders would fail to pass on such cuts in full to existing borrowers. Thankfully, Australia has a competitive mortgage market, so there's always another lender you can switch to should your current one let you down.
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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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