Finance industry executives dissect implications of RBA cash rate hike

Australia’s central bank on raised interest rates for a third straight month as it struggles to contain surging inflation, risking an economic downturn. Wrapping up its July policy meeting, the Reserve Bank of Australia (RBA) lifted its cash rate by 50 basis points to 1.35%, a 125 basis points of hikes since May 2022. Industry leaders offer insights on the central bank’s move and how it is to shape the course of business for various industries going forward.

Carl Hammerschmidt, CEO at Joust

With inflation continuing to run above target levels, it’s clear that the RBA is trying to put the brakes on the economy by further increase in the cash rate by 50 basis points to 1.35%.

The move comes as little surprise following moves by the big four banks of Australia to significantly escalate their fixed rate home loan offers last week. While this is ostensibly more bad news for borrowers who will no doubt begin to feel the effects of increased mortgage payments, the fact is that a correction to market normality can’t come soon enough.

The reality is that borrowers will face continued uncertainty over the next 12 months. It will only be once we see market normality return, with stability in tow, that borrowers will know where they stand. Our prediction is that the cash rate will rise somewhere between 1.5 and 2% by the end of the year, and we’ll see the rate peak between 2 and 2.5% by mid-2023.

Carl Hammerschmidt, Chief Executive Officer at Joust

The speed of further interest rate normalisation by the Reserve Bank of Australia will be, at least in part, dependent on how well businesses and families react to these higher borrowing costs, as well as the pace of real wage gains in the short to medium term.

For borrowers on variable rate home loans who have been taking a ‘wait and see’ approach, now is the time to act. It is time to vigorously start comparing home loans by shopping around for better deals because competition for new borrowers will be at a premium.

Matthew Gatt, GM of Home Loans at Compare Club

We’ve been calling on homeowners to review their home loans and that message seems to be starting to sink in, as we’ve seen record numbers of refinancing enquiries already this year.

The good news is that there are still some competitive fixed term loans available when you look beyond the big four banks, but there’s no telling how long they’ll remain on the market for. There’s some great variable rate options too, so mortgage holders and purchasers have more options than ever to choose from when reviewing their mortgage through a broker.

It really is a market where it pays to take action now. For example, a homeowner with a $600k variable rate mortgage would have seen their repayment rise to an average of $390 per month. That’s an extra $4,680 a year, so for every month a mortgage holder delays reviewing their mortgage, the more they’re paying in ‘loyalty tax’ to their lender.

Matthew Gatt, General Manager of Home Loans at Compare Club

The Banks have continued to reprice their mortgages even before the Reserve Bank of Australia makes any official announcements. Commonwealth Bank‘s unprecedented 1.4% hike on fixed term mortgages last week kicked off another round of rate rises from the banks, which will price some people out of the security of a long-term fixed loan.

There are strategies that households can employ, like paying extra on your mortgage if you can afford it or speaking to your lender to renegotiate your loan. But the best thing any homeowner can do is speak to a mortgage broker or a financial expert. A few calls could save you thousands of dollars in repayments. The same goes for anybody looking to buy.

The housing market is showing signs of cooling but buyers need to know their local market. Some cities may have slowed down but that’s not the case for the whole of Australia.

For example, in the first six months of this year, we’ve seen a 92% increase in enquiries from people looking to buy in Queensland. That will undoubtedly affect the local property market, so the more prepared a buyer is by getting pre-approval and working with a financial expert to understand the budget, the better position they should be in several years down the track.

Arun Maharaj, CEO at HashChing

Each month, we survey our network of brokers on where they think the market is headed. A rate rise was overwhelmingly expected by over 80% of respondents. Understandably, there’s a minority of brokers that are concerned they can weather out a tighter market – just under 40% reported they felt they were currently adequately prepared for a prolonged downturn.

Arun Maharaj, Chief Executive Officer at HashChing

Whilst the rest of the market concerns itself over how high rates will go, we urge all mortgage brokers to use this time to diversify their business portfolios. Examining lead-generation processes and finding new services to offer customers could make the difference between simply surviving or growing over the course of this tightening financial cycle.

For borrowers, it’s never been more important to have a knowledgeable broker on your side who understands your goals and situation as well as the market. There is a great amount of uncertainty, and banks are adjusting their products rapidly. Having an expert on your side who is tracking these offers and can alert you to an opportunity you would otherwise miss.