Families get room to breathe as they search for certainty after RBA interest rate pause

The number of mortgage holders fixing at their loans has doubled, but holding onto an investment property no longer makes sense for these Sydney homeowners.

Kwang Tay and his partner Cindy Tseng at their home in Lindfield in Sydney’s upper north shore. Picture: Adam Yip

The pause in interest rate rises is a welcome relief for Sydney homeowners Kwang Tay and Cindy Tseng.

In 2021, the couple signed a contract for a new townhouse under construction in the northwestern suburb of Asquith after being told they could borrow $800,000, hoping to have more space for their two young children.

They had intended to keep their one-bedroom unit in Lindfield when it was completed but now have been forced to sell after a dozen rate rises over the past 14 months slashed their borrowing capacity, leaving them to stump up $200,000 before their home settles in the coming months.

Mr Tay said the past few months had been stressful.

“We hope we can sell it at a good price so we can have some buffer to handle the mortgage for that couple of months, or maybe until next year, for when rates go up again,” he said.

“We just have to keep going and hope for the best.”

Even though rates were left on hold at 4.1 per cent on Tuesday, monthly repayments on a variable-rate loan of $600,000 are jumping by $1300, or $15,700 a year, at the same time as borrowing capacities are being cut by about 30 per cent.

Homeowners are chasing certainty as economists tip one and possibly two additional rate increases this year.

Finance broker Mortgage Choice recorded a surge in demand for fixed-rate products last month, with 14 per cent of loans submitted by brokers having a fixed portion, compared to just 7 per cent in the month prior.

PropTrack senior economist Paul Ryan expects the next hike could occur as early as next month – similar to the one-month pause in April.

“More tightening is expected to be needed to bring inflation back to the RBA’s target, but rates are close to their peak, which is good news for the housing market,” he said.

The RBA’s statement on Tuesday noted that inflation had peaked and this month’s pause would allow for previous hikes to flow through, adding that while housing prices are rising again and some households have substantial savings buffers, others are experiencing a painful squeeze on their finances.

Mr Tay and Ms Tseng’s Lindfield apartment will head to auction later this month with Ray White Upper North Shore agent Jessica Cao, who has noticed a surprising strength in the number of buyers out in the market.

“The decision today is absolutely good news for home sellers and will boost buyer confidence,” Ms Cao said.

National Australia Bank home ownership executive Megan Bond encouraged homeowners to use the pause to plan ahead and “future-proof” their budgets for what could be a challenging period for the economy.