The Good News? It’s Not All Doom + Gloom!
The Reserve Bank of Australia (RBA) announced on Tuesday 7 November that the cash rate increased to 4.35%.
This marks a 12-year peak and the 13th rate hike since May 2022. According to an RBA representative, this decision was driven by persistently high inflation levels.
It said it was paying close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market to assess the impacts of the increase in the cash rate so far.
But what does a jump in the cash rate mean for you, and how much could future cash rate increases impact your pocket?
We’ll start by breaking down what the cash rate is and how this comes into play with banks and lenders.
What is a cash rate?
The cash rate is a number set by the RBA which is the interest rate that banks and lenders pay on the money they borrow. The RBA announces the official cash rate on the first Tuesday of every month (except January).
The RBA considers a number of factors when deciding whether to change the cash rate. For example, if inflation is too high, increasing the cash rate could help cool it down. If unemployment is too high, decreasing the cash rate could encourage more investment and spending to create more jobs.
How does the cash rate affect me?
While the cash rate itself doesn’t directly impact you, banks and lenders tend to look to the cash rate as a component of their calculation for interest rates. And that is where you could feel the impact.
When the cash rate is low, banks and lenders will tend to offer lower interest rates across loans as well as savings accounts. When the cash rate rises, the interest rates offered by banks and lenders will also likely rise.
What is predicted for the cash rate?
Just a couple of weeks back, three out of the Big Four Banks were predicting that the cash rate had hit its highest point at 4.10%, and they were expecting rate cuts soon. However, with the recent interest rate increase, opinions are a bit divided now.
CommBank is predicting the next cut will come in September next year and will fall to 2.85% by May 2025. Westpac is also predicting September next year but will drop to 2.85% by December 2025. NAB is predicting the next cut with be in August 2024 and the cash rate will fall to 3.1% by March 2025 and ANZ predicts that the next cut will be in December 2024 with the cash rate falling to 3.6% by June 2025.
How much will interest rate rises impact home loan repayments?
We can see lenders already increasing fixed-rate home loan rates in what many anticipate to be a trend we will continue to see. Part of the reason for this is the increase in the cash rate.
We will also likely see variable rates increasing as the cash rate grows. Your repayments will depend on a number of factors including whether your loan is fixed, variable or a split and the size of your loan.
If your loan is fixed, your repayments will not change until the end of your fixed term, when it is a good idea to speak to your broker about finding a competitive deal. If you have a variable rate loan, or a split loan, you are likely to see increases in repayments over the next number of months.
To calculate the average repayment increases, we looked at the average loan size.
According to the Australian Bureau of Statistics, the average home loan in Australia for an existing property in February was $611,524.
Say your variable rate is currently 3% p.a. for a 25-year term paying principal and interest with monthly repayments, your monthly repayment would be $2,900.
We’ll have a look at how much more your monthly repayments may be if your interest rate increases in line with the predicted cash rate increases. The following table was calculated using our home loan repayment calculator.
What if I don’t own property yet?
If you are still saving for your first home, the increase in cash rate could be in your favour. Banks often move savings interest rates in line with the cash rate, meaning as the cash rate increases we could see increased interest rates paid on your deposit. This could give your savings a boost.
On top of this, we are starting to see a rise in listings again with more properties on the market than earlier in the year.
According to Ray White Chief Economist Nerida Conisbee, said that this is impacting both buyers and sellers.
“Interest rates may be higher now but there is a lot less uncertainty, a positive for the market.”
“For now, properties for sale are on the rise and price growth remains strong. In August, Australian house prices increased by 0.4 per cent even though listings increased by 9.4 per cent. Time will tell whether this momentum continues through spring.”
If you’re planning on purchasing property, speak with a broker to understand how much you may be able to borrow and to get a plan in place to hit your goals.
The Loan Market Bowral team is committed to helping locals secure the right loan for their immediate and future goals – whether that’s for a first home, third investment property, refinancing, business investment or buying a new car. Excellent customer service is the core priority and are always happy to chat to Southern Highlanders keen for lending advice and expertise.
Contact the team via their website here or call the office on 4862 1215.
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