Hold off on the celebrations and keep the party pies in the freezer; the long-anticipated rate cuts might not arrive until 2025. Here’s why interest rates might stay elevated for longer, and what actions you can take in the meantime.
In June, the Reserve Bank of Australia (RBA) once again kept the cash rate unchanged.
Interest rates have been static since November of last year. With the RBA not set to make another rate decision until August, this means at least two more months of steady rates.
For homeowners struggling with their home loan at current rates, it raises the question: 'What happened to all the talk of rate cuts in 2024?'
Here’s the situation.
Just a few months ago, major banks were predicting that interest rates would start to decline sooner rather than later.
For instance, Commonwealth Bank and Westpac had anticipated rate cuts as early as September.
Now, this seems increasingly unlikely.
The culprit is inflation.
The RBA aims to reduce inflation to 2-3%.
Unfortunately, inflation isn’t cooperating.
It’s currently at 3.6%. So close, yet not close enough.
The RBA forecasts that it could be “some time yet” before inflation settles into the 2-3% range – the threshold for initiating long-awaited rate cuts.
This isn’t much of a timeline for homeowners, but the big banks have their own projections.
Westpac and NAB now foresee rates dropping from December. While CommBank recently predicted a November decrease, there are signs it’s losing confidence in a 2024 rate cut.
“Given the challenging underlying inflation backdrop, as well as a labour market that is loosening more gradually than expected, the runway is shortening between now and November,” said Gareth Aird, CBA’s head of Australian economics.
“The risk to our call is increasingly moving towards a later start to the easing cycle.”
Meanwhile, ANZ doesn’t expect a rate cut until 2025. The same goes for Citi economists and a growing number of experts.
In short, even if there’s an RBA rate cut in December 2024, it’s likely that these cuts won’t affect mortgages until early next year.
And a word of caution: the RBA stated in its June announcement that it is “not ruling anything in or out”.
This serves as a stark reminder that a rate cut is not guaranteed before another hike.
Revisiting your household budget, finding areas to cut back, and depositing extra cash into an offset account to save on loan interest are all worthwhile strategies.
Remember, tax cuts for 13.6 million Australians commence on 1 July.
This could provide additional funds each payday to help pay off your home loan.
It’s also wise to consult with us for a home loan review.
We can determine if your current loan is still suitable for your needs, or if you could save by switching – without waiting for RBA rate cuts.
Even better, increasing national property values may mean you’re in a strong position to refinance.
Contact us today for more advice on managing your home loan repayments and potentially lowering your loan rate. This might bring those party pies out sooner!
Whether you're in Queensland, especially in Townsville, Brisbane, or the Gold Coast, understanding the current financial climate is crucial for managing your mortgage effectively.
To learn more, contact Premium Finance Group Australia at (07) 4720 8888 or email us at finance@pfga.com.au.
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