Reserve Bank gifts homeowners their longest interest rate reprieve in over a year

Experts warn those paying off a mortgage against becoming complacent by the rate halt as more rises are possible.

The official cash rate was held on Tuesday at 4.1 per cent. Picture: David Swift

Borrowers have been gifted the longest reprieve in mortgage repayment increases in more than a year, but household budgets might be forced to tighten again before Christmas.

The Reserve Bank’s decision to keep the cash rate at 4.1 per cent on Tuesday has given homeowners surety to better adjust household spending after recent figures revealed better-than-expected inflation figures and falling savings levels.

However, housing experts said property owners paying off home loans should not become complacent as more pain was possible ahead of the peak in the cycle.

CoreLogic research director Tim Lawless said the RBA was working with a mixed bag of key data sets which guide its decisions, leaving the door open for another rate increase.

“Although rates remained on hold this month, it’s not to say there won’t be another hike down the track,” Mr Lawless said.

CoreLogic research director Tim Lawless.

“For the housing sector, the decision to hold interest rates over the past two months is positive news. A growing expectation that interest rates have peaked, or are near a peak, should help to lift consumer sentiment from the recession-like lows that have persisted over the past nine months.”

RateCity.com.au research director Sally Tindall said the pause was the right decision and it would allow the RBA to take stock of the impact of previous rises.

“The RBA is well aware that most variable borrowers still haven’t paid for rate hike number 12, so there’s still more pain to come, even without another rise,” she said.

“While it’s impossible to say at this stage whether this will be the end of the hikes, the RBA can at least use this next month to assess whether it’s possible to rein in inflation without having to tighten the screws any further.”

Banking giant ANZ forecasts a long pause in the cash rate as data indicates a softer economy.

RateCity Research Director Sally Tindall. Picture: Tim Hunter.

Mortgage Choice chief executive Anthony Waldron said borrowers still appeared to be choosing variable rates – and those with loan agreements set to expire would be best to look for a better deal than their revert to their offer.

But for those wanting to sell, conditions improved again through July. PropTrack recorded a seventh consecutive month of national price rises.

The Agency chief executive Geoff Lucas said part of the country experienced “mini booms” over the quarter. However, with listings rising he did not expect this trend to continue.

“Some markets showing signs of stagnation or even decline,” he said.

“We believe this shift will continue with further decreases in price growth trending to overall softness later in the year and into the first part of 2024.”

Mr Lucas expected at least one more rate rise before Christmas.

“Don’t get me wrong, the CPI movement last week was positive; it’s just that inflationary pressures remain and a further increase would assist in keeping the foot on the throat of inflation,” he said.

Mortgage Choice chief executive Anthony Waldron.

“The data shows monetary policy is beginning to work and sometimes when the symptoms of an illness are tapering off it’s good to keep up the medicine, no matter how it tastes.”

Despite the recent price increases, a survey by Finder of property experts and economists found almost three in four did not expect this to be the start of a new housing boom cycle.

However, the national president of the Urban Development Institute of Australia (UDIA), Max Shifman, said Tuesday’s building approvals data highlighted a dearth of new construction which could lead to “rocketing” house prices.

“Interest rates and rising costs have had an overwhelming impact on these dismal housing figures and the announcement today by the Reserve Bank to keep the finger on the pause button, as interest rates bite hard into Australia’s finances, is a sensible decision,” Mr Shifman said.

Building approval figures revealed the largest quarterly drop (18 per cent) in over a decade, and the average price of constructing a new property was up 50 per cent on pre Covid-19 levels.

Housing Industry Association chief economist Tim Reardon said the numbers showed that the RBA had gone too far, and that the shortage was threatening to worsen affordability.

Originally published as Reserve Bank gifts homeowners their longest interest rate reprieve in over a year