Lenders may look to increase interest rates despite RBA’s hold on cash rate

The Reserve Bank of Australia (RBA) has announced that the cash rate will remain at historic low of 0.10%, despite soaring house prices. However, lenders may be forced to increase interest rates to match the growth of property prices.

Following last month’s cash rate announcement, RBA Governor Philip Lowe revealed that the RBA is strategising how to reign in the nation’s growing house prices. These strategies could include limits on loan-to-value ratios and debt-to-income, and new interest rate buffers where borrowers are assessed against higher repayment levels.

The deviation from the usual rhetoric on the cash rate signals that the strength of the economy and housing market. This means the cash rate could increase earlier than the 2024 deadline, potentially resulting in higher monthly loan repayments for borrowers.

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How are lenders reacting to the hold?

Experts from Westpac and Commonwealth Bank are predicting an early rate rise to cool down the property market. Both banks are projecting that the cash rate will hit 1.75% by 2023, with the first increase to occur as early as next year.

Lenders are also forging their own path when it comes to interest rates in June, 17 lenders increased a 2-year fixed rate and 19 lenders increased a 3-year fixed rate according to RateCity.com.au.

An increase in rates would add hundreds of dollars to mortgage repayments for consumers. Are you still looking to lock in a great rate? Talk to us about organising your home loan approval or refinancing and get in while the interest rate is low.

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What is driving the growth in property?

The National Bank of Australia (NAB) forecasts that capital city property prices will increase by an average of 18.5% this year, with Sydney unsurprisingly leading the pack. The harbour city saw an unprecedented market growth of 15.4% in the first half of this year.

On top of record low interest rates, government incentives are also fuelling the housing boom. Incentives like the First Home Loan Deposit Scheme and HomeBuilder are having a massive impact on first home buyers’ willingness and ability to buy a home.

How can I keep my interest rate low?

Whilst borrowers don’t have control of market movements, you can consider a few ways to keep interest rate low:

  • Organise refinancing or pre-approval while rates are still low to strengthen any potential home loan savings.
  • Stay on top of your fixed-term’s end date and be on the lookout for low rates as it approaches.
  • Loyalty doesn’t pay, so shop around and compare multiple home loan products for the best chance of securing a low rate.

Ready to compare? Here’s how you get started online:

  1. Select your state and whether you want to purchase or refinance.
  2. After answering a few questions, you’ll be given possible home loan options to start comparing straight away and see if you can potentially save on your mortgage.
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