Experts split on whether mortgage relief is on way with rate cut
EXPERTS agree a rate cut will happen before the end of the year, but are divided over whether the Reserve Bank of Australia will deliver mortgage relief on Tuesday.
EXPERTS agree a rate cut will happen before the end of the year, but are divided over whether the Reserve Bank of Australia will deliver mortgage relief on Tuesday.
Ahead of the RBA’s monthly meeting, the latest finder.com.au survey of 34 high-level national bank and finance operators shows more than half expect the RBA to sit on its hands.
“However, 21 experts are expecting at least one cash rate cut by the end of the year,” spokeswoman Michelle Hutchison said.
“Of these 21 experts, six are forecasting two cash rate cuts this year – one on Tuesday and another later in the year. The cash rate cuts are expected to occur alongside an increase in property prices, according to the majority of respondents. It’s also anticipated by almost one in three experts that fewer first-homebuyers are expected to enter the market this year after the lowest proportion of first-homebuyers in the past decade occurring in February.”
Mortgage Choice agrees with the majority that recent economic data suggests “the levers aren’t there to warrant another rate cut at the May board meeting”.
“The latest CPI results found underlying inflation were slightly above economist predictions – rising 0.6 per cent over the March quarter for an annual growth rate of 2.35 per cent,” spokeswoman Jessica Darnbrough said.
“Further, the recent Labour Force figures from the Australian Bureau of Statistics found the unemployment rate actually fell slightly in March to 6.1 per cent, defying market expectations. These two factors would suggest there is less urgency to cut the cash rate again. Of course, that is not to say we won’t see further easing of monetary policy in the near future.”
Finder’s Ms Hutchison said first-homebuyers could find it easier to lock in a home loan rate they could work into their budget, which would be a welcome incentive to offset increasing house prices. “The average home loan size for first-homebuyers has hit $331,000, which is up $121,000 over the past decade,” Ms Hutchison said. “This works out to be a 58 per cent increase.
“Our research revealed that February this year saw the lowest proportion of first-homebuyers in the past decade, with less than 14 per cent of all home loans financed.
“If fewer first-homebuyers enter the market this year, it could be the lowest number of first-homebuyers ever recorded. It’s clear that borrowers need to spend more money to afford to buy their first home. But it’s important for prospective borrowers to be careful with their budget as the majority of experts from our survey are expecting the cash rate to start rising next year, by as early as February.”
Speaking against the majority, RateCity spokesman and banking analyst Peter Arnold said a number of key economic indicators, including inflation, the Australian dollar and commodity prices, were all pointing to a rate cut this week.
“But the messages are still mixed – Sydney house prices remain high, as does household debt – so it will be another tough decision for the RBA,” Mr Arnold said.
“On top of that, the RateCity database also shows fixed rates continuing to fall, which is another indicator that rates are dropping.
“We track these rates every day and over the past month, and despite no RBA cuts, we’ve seen fixed rates trending down – a sign that the banks are betting on a rate cut, too.”