The RBA has set the wheels in motion for an early cash rate increase.

After the Reserve Bank of Australia (RBA) updated its outlook due to the economy rebounding rapidly from the Delta outbreak, mortgage holders are facing a sooner-than-expected cash rate increase. So, when can we expect a rate increase?

For the 12th month in a row, the RBA kept the official cash rate at a record low of 0.1 percent, as widely expected.

The RBA’s monthly statement, on the other hand, drew the attention of pundits because of the way it was worded.

The phrase “will not be met before 2024” was not used for the first time in a long time when referring to the scenarios that needed to occur for the official cash rate to rise.

Governor Philip Lowe of the RBA indicated in a subsequent webinar speech that it is now “possible that a rise in the cash rate might be justified in 2023.”

This isn't a complete surprise.

Economists from a variety of financial institutions have been urging the RBA to modify its targets for months, with some, such as Commonwealth Bank and AMP, forecasting a cash rate increase as soon as November 2022.

That’s right, it’s only a few months away.

We recognize that some mortgage holders, particularly the younger ones, will be nervous during this time.

After all, more than a million households have never had to pay a cash rate increase (the last rise was back in November 2010).

So rest assured that if you have any questions or concerns about what higher interest rates could entail for your mortgage, we’re here to help.

So, why is the (potentially) delayed increase in the cash rate?

The RBA’s statement sums it up nicely, but here’s a fast summary: the Australian economy is anticipated to recover rapidly from the Delta outbreak’s disruption as vaccination rates rise and restrictions are relaxed.

The RBA notes, “The Delta outbreak prompted a dramatic drop in working hours in Australia, but a rebound is now starting.”

Inflation, on the other hand, has already risen to 2.1 percent.

The Reserve Bank of Australia, on the other hand, insists that any additional rise in underlying inflation will be moderate.

“This will necessitate a labor market that is tight enough to produce wage growth that is significantly higher than it is now.” According to the RBA statement, this is likely to take some time.

At the end of 2023, the Board expects underlying inflation to be no greater than 2.5 percent, with only a moderate increase in wage growth.”

What could happen if the cash rate rises sooner than expected?

The most obvious effect of a cash rate increase is that interest rates will rise, which implies that your monthly home loan payments may increase.

According to CoreLogic’s research director Tim Lawless, this might have an impact on other aspects of the economy, such as home values.

“Affordability challenges, growing stock levels, and tighter financing conditions as of November 1st have already slowed the rate of housing price increase,” adds Mr. Lawless.

If interest rates rise, there’s a good possibility that housing prices will soon fall oppositely.

So, what are your options?

It all depends on your current financial status, of course.

Don’t be discouraged by rising property prices if you’re a first-time home buyer or someone intending to upgrade in the next two years: now is the time to start planning.

Understanding your financing capacity, your property goals, and your existing expenses will help you figure out what changes you can make before you make a purchase decision.

If you already have a mortgage, though, now might be a good moment to reconsider whether or not you should lock in a fixed rate.

Many lenders have recently boosted the interest rates on their two-, three-, four-, and five-year fixed-rate house loans to offset the cash rate rise, and the RBA’s current statement could lead to more rate hikes in the future.

So, if you’ve been on the fence about setting your rate, it’s a good idea to contact us as soon as possible.

We can walk you through a variety of options, such as locking in your interest rate for two, three, four, or five years, or only locking in a portion of your loan (but not all of it).

To learn more, contact Premium Finance Group Australia at (07) 4720 8888 or email us at finance@pfga.com.au


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