The Reserve Bank has kept interest rates on hold at 3.6 per cent, delivering a fresh cost of living blow to Australians with mortgages after inflation came in hotter than expected.
All nine board members voted unanimously for a hold at Tuesday’s meeting, as inflation ticked upward and there remained little unemployment.
Borrowers will now have to wait until at least November for more relief, but it appears unlikely there will be any further cut in rates this year.
Monthly inflation rose to three per cent in August, dashing faint hopes of a September cut.
Treasurer Jim Chalmers said on Tuesday the ‘volatility and uncertainty in the global economy does weigh heavily on our own domestic economy’, putting the blame on international factors rather than government policies.
‘In the face of all of this uncertainty, Australians should be proud of the progress we have made on the economy,’ he said.
‘We have been able to get inflation down while maintaining low unemployment. We have seen real wages and living standards grow in recent data.
‘We have also been able to get the debt down substantially, deliver a couple of surpluses and a much smaller deficit as revealed in yesterday’s final budget outcome.’
The Reserve Bank has kept interest rates on hold at 3.60 per cent, dealing a fresh blow to Australians with mortgages after inflation came in hotter than expected
Chalmers was asked by a journalist whether he was concerned the RBA would not cut interest rates in the foreseeable future, reducing the spending money for mortgage holders and thereby damaging prospects for retailers.
‘I don’t engage in that kind of commentary,’ he said.
‘We’ve seen interest rates cut three times already this year when we came to office. Interest rates were already rising.
‘Inflation was around double what it is now and rising fast. We’ve been able to get inflation down. We’ve seen interest rates cut multiple times.
‘As a consequence we’ve got real wages growing.’
Since February, the Reserve Bank has lowered mortgage rates by 0.25 per cent three times, trimming more than $270 from monthly repayments on an average $600,000 loan.
For someone with a $1million mortgage, the relief is around $453 per month.
With rates on hold for now, Canstar.com.au data insights director, Sally Tindall said Aussies needed to shop around banks for a better rate (pictured, houses in Canberra)
With rates on hold for now, Canstar.com.au data insights director, Sally Tindall said those seeking mortgage relief need to shop around banks for a better rate.
‘Borrowers looking to turbo-change the savings even further should consider switching to a lower rate mortgage,’ she said.
Canstar.com.au lists the lowest variable rate for owner-occupiers at 4.99 per cent, which is reserved for first home buyers, however, those refinancing may be eligible for rates as low as 5.08 per cent.
‘Right now, the average owner-occupier on a variable rate is estimated to be paying 5.53 per cent, yet there are more than 30 lenders on Canstar offering at least one variable rate under this mark.
‘A complacent owner-occupier who hasn’t refinanced their mortgage recently is sitting on a rate of around 6.36 per cent. If they switched to a competitive rate of 5.25 per cent on a $600,000 debt and 25 years remaining they could put $403 a month back in their pocket.
‘For some families, that $403 a month isn’t about getting ahead on the mortgage, it’s about keeping the household budget afloat. It’s money that can go towards the weekly grocery shop, paying down bills or covering the rising cost of raising kids.
‘But for those that can, the real secret is to keep your repayments the same. On a $600,000 loan, paying an extra $403 a month could potentially shave more than $220,000 off your interest bill and knock over five years off a 25-year loan.
‘Refinancing does involve some paperwork, which can be a turnoff, but the numbers show it’s a game-changer.’
Canstar.com.au lists the lowest variable rate for owner-occupiers at 4.99 per cent, which is reserved for first home buyers (stock image)
Markets had significantly adjusted their expectation of a rate reduction after last week’s consumer price index figures.
Ivan Colhoun, chief economist at CreditorWatch, said further reductions were unlikely this year.
‘Indeed, if these trends are sustained, then a further cut in interest rates before Christmas seems unlikely,’ he said.
‘While previous interest rate cuts have reduced some of the pressure, overall cost of living and cost of doing business pressures remain challenging.’
But Tim Lawless, research director at property analytics firm Cotality, said the RBA was unlikely to put too much weight on the volatile monthly inflation figure.
He said the more reliable quarterly data due in October would be decisive at the November meeting.
A softer inflation reading could pave the way for further rate relief and a lift in home prices.
‘A further cut to interest rates is likely to provide additional support to housing demand from an increase in borrowing capacity and serviceability assessments, but also via higher consumer sentiment,’ he said.
While the chance of a cut is off the table for now, first-home buyers will get a separate boost on Wednesday.
The federal government’s expanded first-home buyer guarantee scheme, which allows eligible buyers to purchase with a five per cent deposit rather than ten, will slash the time it takes to save for a home.
In Sydney, where the scheme’s property cap has been lifted to $1.5million, a couple earning a combined disposable income of $123,674 could see their deposit-saving timeline fall from more than 10 years to under three.
Buyers in Melbourne and Brisbane will save around five years and nine months, while those in Adelaide will cut the hurdle by five years and seven months.
But there are downsides to this policy, Dr Powell said.
A smaller deposit means more debt overall, a higher risk of negative equity if prices fall and more people in the market, pushing home prices even higher.
Cotality head of research Eliza Owen said rising rental costs made the scheme more appealing despite the risks.
In Sydney, shaving six years off the time to save for a deposit would save a renter $251,000 in rent at the city’s median weekly rent of $801.
‘Even though a smaller deposit means paying more interest over time, it could still work out cheaper for renters,’ Ms Owen said.