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Experts are warning homeowners to prepare for a rise in mortgage rates within months, despite the RBA holding rates at 0.25%.
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The latest Finder RBA cash rate survey saw 57 per cent of experts expect that mortgage rates will rise by 2021, whether the cash rate remained at 0.25 per cent or, as some warn, even if it flatlines at zero.
The RBA last moved to drop the official cash rate to a record low 0.25 per cent in March this year as the coronavirus crisis began to spread, and had since refused to touch it, even in the face of the market swinging towards a decrease to 0.00 per cent in late August.
On Monday the ASX 30 Day Interbank Cash Rate Futures September 2020 contract was trading at 99.885, “indicating a 56 per cent expectation of an interest rate decrease to 0.00 per cent at the next RBA Board meeting”, according to data on the Australian Stock Exchange.
Finder insights manager Graham Cooke warned against complacency either way, saying “a flat cash rate does not mean homeowners are in the clear”.
“We learned this during the most recent period of cash rate stagnation. While the rate held at 1.25 per cent for 34 months starting in 2016, banks increased their variable rates seven times,” he said.
“This means that homebuyers considering a variable mortgage should still factor in a potential repayment increase of 2-3 per cent to their budget to prevent rate shock.”
Canstar’s Steve Mickenbecker called for homeowners to look for better deals off lending institutions.
“There are likely better rates out there for you. We know lenders have been moving rates out of step with the Reserve Bank, and the moves have been largely cuts with just one variable rate increase since July, and widespread rate rises still seem a while off,” he said.
Canstar data showed that eight lenders hiked fixed interest rates while none increased variable ones in August.
At the same time, 17 lenders cut variable rates and 12 cut fixed rates, it found. The data was based on based on owner occupier and investment loans in Canstar’s database available for $400,000, 80 per cent LVR.
Pandemic-induced pressure on banking profits was driving the prediction, with half the experts on Finder’s survey bracing for rises in the first half of next year.
Economist Cameron Kusher of REA Group said RBA statements indicated “it remains reluctant to cut official interest rates”.
“On the other hand,” he said, “their forecasts would seem to indicate they remain a long way away from achieving their economic goals which would put them in a position to start increasing rates”.
Matthew Peter of QIC told the survey that “RBA has signalled that it will keep rates on hold for around three years”.
“Governor Lowe has also indicated that the RBA is highly unlikely to shift rates into negative territory. It is more probable that the RBA will lower the cash rate to 0.10 per cent if the outlook deteriorates. However, at this point, the RBA is likely to remain on hold for the foreseeable future”.
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Source: https://www.realestate.com.au/news/dont-celebrate-rba-flatlining-rates-prepare-for-a-rise-experts/
Foster, S. (2020, September 1). Don’t celebrate RBA flatlining rates, prepare for a rise: Experts. Retrieved from https://www.realestate.com.au/news/dont-celebrate-rba-flatlining-rates-prepare-for-a-rise-experts/