Housing relief: RBA keeps interest rate at 4.1pc for fourth month

In a relief for struggling homeowners and boost to Spring sales, the Reserve Bank has held interest rates at 4.1pc for the fourth month straight in Governor Philip Lowe’s last call in the top job.

In a relief for struggling homeowners and boost to Spring sales, the Reserve Bank has held interest rates at 4.1pc for the fourth month straight in Governor Philip Lowe’s last call in the top job.

The RBA’s cash rate target has been 4.1 per cent since June 7, making September the fourth month in a row it will be at that level - and potentially remain there through to Christmas according to experts.

Mr Lowe said “interest rates have been increased by 4 percentage points since May last year. The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so. In light of this and the uncertainty surrounding the economic outlook, the Board again decided to hold interest rates steady this month.”

PropTrack senior economist Eleanor Creagh said “the decision by the Reserve Bank to continue holding the cash rate steady in September is likely to maintain both buyer and seller confidence as the spring selling season begins, with home prices likely to continue lifting in the period ahead”.

She said “subsiding momentum in inflation and consumer spending have eased pressure on the RBA to continue lifting interest rates as it tries to avoid a recession whilst returning inflation to the target range”.

Comparison site Finder head of consumer research Graham Cooke said “mortgage holders can take a breather from the relentless pressure of the back-to-back interest rate hikes – we may even see the rate stagnate until the end of the year”.

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Compare the Market economic director, David Koch, said the relief was welcome given overleveraged borrowers would suffer if high rates lingered.

“While we might have reached a peak, we’re a far cry away from the ultra-low rates Dr Lowe had forecast until 2024,” Mr Koch said. “It’s unlikely we will ever get back to the record low rates we had during the pandemic. Those days are probably gone. Unfortunately, that means a lot of borrowers – particularly young people – will struggle to make their repayments.”

This as Finder warned distressed property sales could be on the rise, with 15 per cent of just over 1,000 people in its latest survey worried about being forced to sell their home – the equivalent to 515,000 households financially stretched to the limit.

The ASX RBA Rate Indicator had showed a long shot 14 per cent expectation the Reserve Bank would cut the official interest rate to 3.85 per cent at its Tuesday board meeting – the last monetary policy gathering for outgoing Governor Philip Lowe - but the leading view (86 per cent) was RBA would hold at 4.1 per cent as the peak of pandemic-era fixed rate mortgages transition into variable this month.

Australia has been in the grips of a housing shortage since the pandemic, with many homeowners expected to make whatever sacrifice necessary to maintain their property. Almost $30m worth of fixed rate mortgages are expected to transition to variable rates this month. Picture: Darren England.

An estimated $60b worth of fixed rate mortgages expired across the Big Four banks during July and August, according to PropTrack, with a further $30b set to revert to variable terms come the end of September.

Finder home loan expert Richard Whitten warned repayments had jumped by thousands of dollars a month as thousands of fixed rate mortgages started to expire.

“Many had locked in ultra low interest rates for a couple of years – so some people are paying 3 or 4 more percentage points on the mortgage overnight. Many just can’t find potentially thousands of dollars more each month to service their home loans.”

Finder's Richard Whitten said borrowers are experiencing a huge financial shock.

He said “borrowers are experiencing a huge financial shock after a relentless climb in interest rates over the past year and homeowners weren’t coping”.

The survey found younger homeowners were three times as likely to be stressed over having to sell up (27 per cent – gen Y and z) as older mortgage holders (9 per cent – gen X and Baby Boomers).

Canstar finance expert, Steve Mickenbecker, said despite inflation slowing (4.9 per cent over the year to July from 5.4pc in June) “borrowers understandably are still fearful that interest rate shocks can still emerge”.

“With each 0.25 per cent hike lifting the repayment on a $500,000 loan by around $80 the fear is well justified. Repayments have already gone up by $1,217 to $3,320 and there are high levels of stress,” he said.

Canstar’s Steve Mickenbecker said cracks are starting to appear in some loan repayments.

“The cracks are starting to appear,” Mr Mickenbecker said, “with lenders reporting higher thirty-day arrears in loan repayments, and with close to one-third of borrowers reporting that they are living beyond their means, the problems are only just starting. The housing crisis is finding victims at all levels, with renters feeling the pain even more as four in ten report that they are living beyond their means.”

Households continued to tighten their belts in latest spending data released by the Australian Bureau of Statistics on Monday, down 0.7 per cent over July last year.

MORE: See the latest PropTrack Home Price Index

ABS head of business statistics Robert Ewing said “this is the first time since February 2021 that the spending indicator has fallen”.

“Spending on discretionary goods and services was down for the fourth straight month. It fell 3.3 per cent over the year, as households adapt to cost of living pressures. Non-discretionary spending rose 1.7 per cent, which is the lowest growth rate since early 2021.”

Mr Whitten said anyone struggling with their mortgage should be upfront with their lender before they started missing payments.

“Your lender may be able to help you, with options like a repayment pause, a temporary reduction in your repayments, or financial counselling”.

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