June 07, 2022
The Reserve Bank of Australia (RBA) decided at its June monetary policy meeting to raise the nation’s official cash rate by 50 basis points to 0.85%.
Speaking about the decision, Mortgage Choice National Sales Director David Zammit said, “Last month the Reserve Bank sent a clear message to Australians that it had started on a path towards normalising monetary policy and further rate rises may be required.”
The latest Australian GDP data showed the economy continued to grow over the March quarter. The Australian Bureau of Statistics’ labour force survey showed that the unemployment rate remained at 3.9% in April and inflation is expected to rise further this year, supporting the conditions for further rate increases.
PropTrack economist Paul Ryan said, “More interest rate increases are expected in 2022, as inflation has been higher than anticipated by the RBA. But just how high interest rates will be at the end of the year is a key source of uncertainty for the housing market.”
The housing market continues to lose steam, due in part to the rising interest rate environment. The PropTrack Home Price Index revealed that in May Australian home prices fell –0.11% for the first time since the start of the pandemic. Prices continued to decline in Sydney (-0.29%) and in Melbourne (-0.27%), while prices in the ACT (-0.12%) were down for the first time in three years. Monthly price growth has slowed almost everywhere across the country, with regional areas seeing a flat result in May. The latest housing finance data from the Australian Bureau of Statistics shows that this softening trend is likely to continue, with the number of new loans for housing falling 6.4% over April.
Mr Ryan continued, “Financial markets have priced in a cash rate two percentage points higher at the end of the year, which would raise mortgage repayments by another 24%. Major bank forecasters, however, do not view it likely the RBA will increase rates this quickly, predicting rate rises closer to half that much.”
Mr Zammit said, “In a rising rate environment, it becomes increasingly important to have a mortgage broker advocating for a borrower’s interests. And it seems more and more Australians are valuing the services brokers provide. In the March quarter of 2022, mortgage brokers facilitated almost 70% of all new residential home loans, according to the latest data commissioned by the MFAA.”
Recent Mortgage Choice home loan submission data showed a slight uptick in the proportion of borrowers choosing to refinance – from 38% in April to 41% in May. It is important to note however that this data does not account for the large number of Mortgage Choice customers whose brokers negotiated a better deal with their existing lender as part of their annual home loan review.
“Mortgage Choice loan submission data shows that demand for fixed rates fell again in April to the lowest level in over two years. The overwhelming majority of borrowers are opting for a variable rate loan and only 10% of loans had a fixed component.”
“My advice to borrowers and prospective buyers is to speak to a mortgage broker to ensure you’re getting the right loan for your needs. Interest rates may be rising but there are still some great deals in the market and your broker can help you find them,” said Mr Zammit.