The Reserve Bank increased the official cash rate on Tuesday May 2nd by 25 bases points, taking the cash rate to 3.85%. It was a move that took many by surprise.
CBA was the only major bank that forecast the increase. The other three banks, and other economists expected that there would be no change to this month. The popular opinion was that the RBA would want to pause for at least another month (after rates were put on hold for the first time in April), to assess the impact of the previous ten rate rises on households and the economy.
However, the Reserve Bank Governor Phillip Lowe justified the increase in his statement.
“Inflation in Australia has passed its peak, but at 7% is still too high, and it will be some time yet before it is back in the target range. Given the importance of returning inflation to target within a reasonable timeframe, the Board judged that a further increase in interest rates was warranted today.”
What this means for your home loan
Unfortunately, borrowers are bearing the brunt of the tackle to curb inflation. Major lenders announced they will be passing on the increase to borrowers with variable rates resulting in higher monthly loan repayments.
Steps to take:
- Review your loan account to check what your current repayment amount is, and what it will be when the latest rate increase comes into effect. – Use the home loan repayment calculators on our website or contact us and we’ll calculate the new payment amount for you.
- Review your household budget to ensure you can manage higher loan repayments.
- If you haven’t spoken with us recently about your rate, call us. We’ll scan the market to check it’s still competitive and or identify whether there may be an opportunity to negotiate a better rate with your existing lender.
- If you are on a fixed rate, contact us to discuss what your options are when your fixed rate expires.
- Consider what your repayments could be if rates continue to rise. Use the home loan repayment calculators on our website or contact us and we’ll crunch the numbers for you.
- If you are concerned about higher repayments, please contact us to discuss options.
What’s ahead for rates, have we hit the peak of rates?
In statements to the media, RBA governor Philip Lowe admitted that some further hikes may be necessary to bring inflation under control.
The timing and extent of further rate rises will depend highly on economic indicators. Once again, these indicators do not point to a clear path forward for future rate movements. Inflation and spending is down, but not enough. Property prices have had a slight increase, but they could fall again. Some economists suggest rates will increase again in June. At the same time, the Reserve Bank is getting a lot of criticism for the May increase. Whether this is the peak seems to be a toss-of-the-coin scenario and as data becomes available, forecasts for rates change.
Therefore, we continue to suggest that borrowers err on the side of caution and plan for further rate rises. If there is a pause in further increases, then that’s a bonus.
Please do not hesitate to contact us to discuss your home loan rate and or repayments. We’re here to help.
This article was published on 4 May 2023. It is intended for general information purposes only. It has not taken any individual personal circumstances into account. It’s important to consider your circumstances before deciding what’s right for you. You should seek qualified advice before making decisions. Please talk to your mortgage broker or Court Financial Services about your specific situation.
