Put those party pies on hold and delay any rate-cut celebrations. The long-anticipated rate reductions might not materialize until 2025. Here’s why interest rates could remain elevated for an extended period and how you can take proactive steps with The Loan Club.
In June, the Reserve Bank of Australia (RBA) once again kept the cash rate unchanged.
Rates have remained steady since November of last year, and with the RBA’s next rate decision not due until September , interest rates may stay in a holding pattern for possibly another two months or so.
For homeowners grappling with mortgage affordability at the current rates, the question arises: ‘What happened to all the predictions of rate cuts in 2024?’
Here’s what’s going on.
Why Rates Aren’t Falling Yet
Just a few months ago, some of the largest banks predicted that interest rates would begin to drop sooner rather than later.
The Commonwealth Bank and Westpac, for instance, expected rate cuts as early as August. However, this now appears increasingly unlikely.
The reason lies partly with inflation.
The RBA is committed to bringing inflation down to its target range of 2-3%. Unfortunately, inflation is currently at 3.6% – close, but not quite within the desired range.
When Might Rates Decline?
The RBA anticipates it could be "some time yet" before inflation settles into the 2-3% range – the point at which mortgage deals and home loans could benefit from long-awaited rate cuts.
While this doesn’t provide much certainty for homeowners, the big banks have offered their own timelines.
Westpac and NAB now forecast interest rates will decrease starting in December. Although CommBank initially expected rates to drop in November, recent signs suggest they’re losing confidence in a 2024 rate cut.
Gareth Aird, CBA’s head of Australian economics, stated, “Given the challenging underlying inflation backdrop, as well as a labour market that is loosening more gradually than expected, the window for a rate cut is narrowing.”
Meanwhile, ANZ doesn’t foresee a rate cut before 2025. The same outlook is shared by Citi economists and a growing number of other experts.
In summary, even if a December 2024 RBA rate cut occurs, it’s likely that home loans won’t see the impact until early next year.
A word of caution: the RBA mentioned in its June statement that it is "not ruling anything in or out." This serves as a reminder that a rate cut isn’t guaranteed before another rate hike.
That’s why it’s crucial to take control of your own situation.
How to Manage Higher Interest Rates
Consider revisiting your household budget, identifying areas to cut back, and depositing any spare cash into an offset account to reduce loan interest. Additionally, tax cuts for 13.6 million Australians has taken effect from July 1, potentially providing extra cash each payday to help manage your home loan and expenses.
It’s also wise to consult with mortgage brokers who are partnering with The Loan Club for a comprehensive review on mortgage loans that fall short of lender’s requirements. Our team can help determine if your current loan still meets your needs or if switching could save you money – without waiting for RBA rate cuts.
Better yet, rising property values nationally might mean you’re in an excellent position to refinance. Explore options such as second mortgages, bridging loans or small loans online with The Loan Club to make the most of your financial situation.
Reach out to us today for more tips on assessing your loan affordability and possibly reducing your loan rate. With the right strategy and support from The Loan Club, you might not have to wait long to celebrate!
Disclaimer: The information provided here is for general knowledge only and does not constitute financial advice. Please consult with a qualified professional before making any financial decisions.
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