RBA hikes cash rate yet again

As such, the official cash rate is now 2.35 per cent. The last time Australia’s cash rate was at this level was in April 2015.

RBA governor Philip Lowe stated that inflation in Australia is “the highest it has been since the early 1990s and is expected to increase further over the months ahead”, with both global and domestic factors playing a role.

He continued: “The board is committed to returning inflation to the 2–3 per cent range over time. It is seeking to do this while keeping the economy on an even keel. The path to achieving this balance is a narrow one and clouded in uncertainty, not least because of global developments.

“The board expects to increase interest rates further over the months ahead, but it is not on a pre-set path. The size and timing of future interest rate increases will be guided by the incoming data and the board's assessment of the outlook for inflation and the labour market. The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time,” he continued.

Broking industry on the rate changes

“Today’s increase on top of the previous rate rises will hit borrowers hard, and I hope that very soon there is some reprieve,” warned Finance Brokers Association of Australia (FBAA) managing director Peter White AM.

“We have reached a point where more borrowers will find it impossible to refinance and will be trapped in ‘mortgage prison’.

"In other words, they are forced to stay with their current lender at whatever rate they are being charged, because they are unable to secure a new loan due to the rate on which their application is assessed, which is on average a couple of per cent above the actual rate.

"If their property value – and therefore equity – decreases, they can find themselves below the deposit threshold required by a new lender, and this can also make refinancing very difficult," he said.

Mr White added that borrowers would be best placed reviewing their loans with a mortgage broker, given the changing environment.

Indeed, the industry expects the RBA will keep increasing the cash rate each month at least until inflation reaches its anticipated peak later this year.

Speaking after the rate decision, the chief executive officer of aggregation group Finsure, Simon Bednar, commented: “Inflation in Australia is the highest it has been since the early 1990s and is forecast to peak at 7.75 per cent after reaching 6.1 per cent over the year to the June quarter.

“The RBA has been going hard with its increases to the cash rate since May this year when it was at the record low of 0.10 per cent, and there looks to be no respite for mortgage holders until inflation is back towards the 2-3 per cent range.”

Mr Bednar said the looming end of the 22.1-cent fuel excise cut later this month would also likely have an adverse impact on inflation and consumer sentiment, with petrol prices expected to jump back over $2 per litre.

“The significant increase in fuel prices from late September should weigh on the RBA’s 4 October cash rate call and whether it remains prudent to hit mortgage holders dealing with cost-of-living pressures with another rate hike of up to 50 basis points,” he said.

The Finsure CEO said the RBA factor would likely factor into its future cash rate deliberations any measures included in the federal budget (to be handed down on 25 October).

“While this could be a reason for the central bank to take a break after months of significant tightening of monetary policy, we still think they’ll keep hiking rates, perhaps at a lower level, until inflation is under control,” he added, noting that brokers have been busy dealing with inquiries from mortgage holders about refinancing, including many home owners soon to come off fixed rates. 

Speaking about the decision, Mortgage Choice CEO Anthony Waldron also commented, stating that the increase “comes as no surprise given recent economic conditions”.

"New retail sales data published by the Australian Bureau of Statistics show that despite a strong labour market and rising interest rates, households are continuing to spend," he flagged. 

“When you look at the home loan market right now, there’s a strong case to be made for borrowers to work with their brokers to review their home loans and get a more competitive deal,” Mr Waldron continued.

“Many lenders are offering cash backs to entice borrowers to switch and attractive home loan rates for new customers,” he said, highlighting the value of brokers at this time.

David Hyman, CEO of Lendi Group also commented, saying: “We are now experiencing a return to more normal interest rates than what has been seen over the past decade, and these increased rates will be impacting many household budgets. Home owners and particularly first home buyers who purchased property in early 2020 — at the top of the now falling property market and at a time of unprecedently low interest rates — are most vulnerable to current rate rises.

“Many home owners who purchased their property before the pandemic benefited from low interest rates and collectively accrued $260 billion in savings over the last few years, often in redraw and offset facilities. These mortgage holders are more resilient to interest rate increases and are now experiencing a return to pre-pandemic rates.

“It’s important that mortgage holders know their options and take action to help manage the increasing costs of living. The rising cash rate should be as strong impetus for borrowers to act now through reaching out to their broker, starting the refinance conversation, and saving on their lender ‘loyalty tax’.”

The Lendi Group CEO said that “the recent market volatility highlights the crucial role of brokers in helping home owners navigate the market to secure finance that best suits their individual needs”.

Rate-rise slowdown could be on the cards

The founder of mortgage brokerages Home Loan Experts, Otto Dargan, also warned that most home owners on variable-rate mortgages can expect lenders to “pass on that increase [50-basis-point increase] to them in the form of higher interest rates”.

“That would mark the fifth straight month of cash rate hikes.

“Most economists think the RBA will now slow down with rate rises,” he continued.

“The psychological impact of a rate increase is immediate; however, the financial impact slowly builds over many months. 

“For this reason, the RBA wants to be cautious, to avoid overshooting the mark and then being in a position where it needs to decrease rates,” the Home Loan Experts founder explained.

Mr Dargan also pointed to at least one sign that interest rates might ultimately not go as high as many once thought they would.

“We’ve seen several banks reduce their fixed rates in the last month, which indicates that the money market does not expect rate rises to be as significant as they were forecast to be a few months ago,” Mr Dargan stated.

Meanwhile, executive director Mark Haron of aggregator Connective commented “The role of a broker is crucial, especially during market uncertainty.

“Currently, the volume of applications for home lending is softening as the market moves away from record low interest rates.

“There’s no doubt, consumers are feeling the pinch of the higher cost of borrowing along with inflation which is triggering a wave of refinancing enquiries for us."

He continued: “We’re expecting refinancing activity to remain strong as a large number of ultra-low fixed rate home loans expire over the next 18 months. This provides a great opportunity for brokers to speak with clients about finding a fair deal that meets their needs.

"In a rising rates environment, borrowers will continue to tap into the expertise of brokers to help them access competitive loans, quickly and easily.

“We know from recent data released by Mortgage and Finance Association of Australia (MFAA) that brokers facilitate around seven in 10 new residential home loans, demonstrating the high value and trust borrowers place on brokers.”

 [Related: RBA tackles inflation with whopping rate hike]