Australia’s homeowners could be in for a brief reprieve from rising mortgage repayments, with the Reserve Bank of Australia tipped to hold the cash rate steady at its next meeting in June.
However, experts warn this pause is merely a breather, not the end of the rate hiking cycle, with further increases potentially looming later in the year.
The RBA’s decision to likely hit pause comes as the nation grapples with a jump in the unemployment rate, which climbed to 4.5 per cent in April – the highest seasonally adjusted figure since November 2021.
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This new data point adds weight to the RBA’s May Board minutes, which indicated a desire for “space to see how the conflict in the Middle East develops and Australian households and businesses respond” to the three previous cash rate hikes.
While the global geopolitical landscape and the impact of past rate increases are significant factors, the latest unemployment figures provide another compelling reason for the RBA to exercise caution.
Banks revise forecasts, August hike on the cards
Following the unemployment data, NAB has revised its cash rate forecast, now anticipating one more increase, but not until August, pushing back its previous June expectation.
This shift means all four major banks now predict the RBA will keep the cash rate on hold at its June 15 to 16 meeting.
Source: Canstar.com.au.
However, there’s a divergence in long-term outlooks.
Only the Commonwealth Bank and ANZ believe this will mark the end of the rate hiking cycle.
Westpac and NAB, conversely, still foresee further increases.
The cost of another 0.25 per cent hike
For a homeowner with a $600,000 mortgage and 25 years remaining on their loan, another 0.25 per cent cash rate hike in August would add an extra $92 to their monthly repayments.
If this were to be the fourth hike for the year (following February, March, and May increases), the cumulative monthly increase would reach a substantial $364.
Borrowers urged to act now
Canstar.com.au’s research highlights a critical issue: many owner-occupiers who took out a mortgage five years ago and haven’t renegotiated are now sitting on a variable rate of 7.01 per cent.
Sally Tindall, Canstar.com.au’s data insights director, warns that “if you are now sitting on a rate starting with a 7, you’re essentially paying a big fat loyalty tax to your bank, especially as an owner-occupier.”
Source: Canstar.com.au.
She stresses that this potential June pause offers a crucial window for borrowers to review their finances.
“While one month of data doesn’t make a trend, the jump in unemployment suggests higher interest rates could now be starting to bite,” Ms Tindall said.
“A pause in June will offer a much-needed breather, however, borrowers shouldn’t mistake it for a peak.”
Source: Canstar.com.au.
Canstar’s data shows that by switching to a more competitive rate, such as 5.99 per cent, a borrower with a $600,000 loan could potentially save over $11,000 in the next two years, even after factoring in typical switch costs of around $1,150.
“Banks are still fiercely competing for quality borrowers. Even after this latest hike, there will still be around 40 lenders with at least one variable rate at 5.99 per cent or below,” Ms Tindall added.
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