August 02, 2022
At its August monetary policy meeting, the Reserve Bank of Australia (RBA) again raised the nation’s official cash rate by 50 basis points to 1.85%.
Speaking about the decision, Mortgage Choice CEO Anthony Waldron said, “The Reserve Bank has raised the cash rate again this month, as it continues to battle rising inflation.
“Mortgage Choice commissioned a survey of 1000 borrowers in March this year to understand how prepared Australians were for interest rate rises and found that 48% of respondents were concerned. We commissioned another survey in June and found that the proportion of borrowers concerned about rate rises had risen to 56%.
“While concern is understandable, it’s important to put this cycle of rate hikes into context. For the last few years, borrowers have had access to the lowest rates on record. We knew that rates would start to normalise at some point, and the current hikes will stabilise eventually.
“Mortgage Choice home loan submission data shows that many borrowers are being proactive with their home loans, seeking more competitive home loans by switching to new lenders. Our data shows that 42% of borrowers opted to refinance their home loans over July. What the data doesn’t show is the proportion of borrowers whose brokers have been able to negotiate a better rate with their existing lender.
“Our data also shows that the overwhelming majority of borrowers are willing to ride the variable rate wave, with only 5% of loans submitted by our broker network having a fixed component over July,” said Mr Waldron.
PropTrack Economist Eleanor Creagh said, “Mortgage rates have quickly moved higher as interest rates have risen, and that means that many prospective borrowers can no longer borrow the same amount as they could before interest rates began to rise. As interest rates continue to climb those borrowing capacities will be further constrained.
“Prospective buyers also face a lot of uncertainty around where future mortgage rates are going to be and what's going to happen to mortgage servicing costs, particularly relative to those over the past two years. All of that is certainly being reflected in the housing market. We've seen potential buyer demand has moderated across a number of different metrics that we track, and certainly confidence has slipped amongst buyers. Not only auction volumes but clearance rates have fallen and sales volumes have also slowed off of last year's extremely elevated levels.”
Rising interest rates continue to put downward pressure on the property market. PropTrack data reveals that there is more stock available for sale and fewer competing buyers in market. Between March 2020 and March 2022, property prices nationally increased 35.1%, however, between March and June 2022, prices fell 0.5% and are expected to fall further. The PropTrack Home Price Index showed that national home prices continued to fall in July. While prices are down only 1.66% from their peak in March 2022, higher interest rates – and expectations they will keep increasing – have spread price falls across almost all markets.
Mr Waldron said, “Many lenders will no doubt pass on today’s rate hike. As home loan interest rates and the cost of living continue to rise, it’s critical that borrowers stay on top of their household budget and more importantly, their home loan.
“I would encourage all borrowers to review their home loan with a mortgage broker and get ahead of potential future increases. Your broker can help you understand if your home loan is competitive and, if not, they can help you secure a better rate.”
