History of Mortgage Rates in Australia & Where They Might Go

Over the years, Australia’s interest rates have seen highs of up to almost 18% in January of 1990 and a record low of 0.10% in November 2020. 

While many new and existing homeowners took advantage of the low interest rates available just a few short years ago, rates have since increased sharply in an attempt to curb inflation and slow a strong property market. This has put financial pressure on a number of borrowers who took out home loans when rates were low. So, where to from here?

Here’s a quick look at Australia’s interest rate history and where they’re predicted to go in the coming months. But first, it’s important to understand how mortgage rates are determined.

How are mortgage rates determined?

In 1960, the Reserve Bank of Australia (RBA) took over as Australia’s central bank. The RBA is responsible for setting the official cash rate, which is Australia's official interest rate charged on unsecured overnight loans between banks. In a nutshell, it’s a measure of how much it costs banks to borrow from each other.

When it comes to the interest rate applied to your home loan, there are four costs that are combined to determine the interest rate, including:

• The cost of funds: Or the cost of getting access to funds to lend, which is made up of deposit rates that are paid to deposit holders and money borrowed in domestic and international markets,
• The cost of insurance: The cost to manage differences in rate between different funding sources, which helps keep the rate steady,
• The cost of capital reserves: Whenever money is lent to customers, cash needs to be held to protect against any losses, like defaults and loans that go unpaid, and
• Your lender’s margin: This is the revenue that’s used to cover the costs of running a lending business (including marketing, technology and salaries).

Essentially, when the cash rate goes up, it makes it more expensive for banks to borrow money, which leads to higher mortgage rates and vice versa. You can read more about how Unloan’s interest rates are determined here.

Historical home loan interest rates

Over the years, the Australian economy has experienced a number of domestic events and global financial developments that have impacted Australian home loan interest rates. Here’s a look at the history of mortgage rates dating back to the 1990s.

Pre 2000s

In the 1990s, the RBA implemented inflation targeting, aiming for 2-3% inflation. This influenced a gradual decline in interest rates, which peaked at 17.5% in January 1990.

As it currently stands, the target inflation rate still sits at 2-3% in 2024. You can take a look at a graph tracking the inflation rate all the way back to 1956 on the RBA site here.

2000s

Jump forward to June 2002, and the official cash rate is sitting at 4.75%. The rate was relatively consistent until the end of 2003, when interest rates gradually started to rise from 4.75% to a peak of 7.25% in March 2008 in response to strong economic growth and rising inflation. 

Then the Global Financial Crisis (GFC) took the global economy by storm. It was the most severe economic crisis the world had experienced since the Great Depression, which lasted from 1929 to 1939.

The GFC prompted a series of rate cuts by the RBA to minimise the potential economic impact. While the Australian economy performed relatively well compared to other advanced economies, the RBA reduced the official cash rate from 7.25% in August 2008 to 3.00% by April 2009.

2010s

As the Australian economy continued to recover in the wake of the GFC, the RBA increased slightly, peaking at 4.75% in November 2010. In the following years, the RBA progressively cut rates amid weak economic growth and low inflation, reaching 1.50% by August 2016. Throughout 2019, the RBA announced multiple rate cuts due to sluggish economic conditions, bringing the cash rate down to 0.75% by October.

2020s

In 2020, the COVID-19 pandemic hit, causing emergency rate cuts, with the RBA lowering the cash rate to a historic low of 0.25% in March, and even further to 0.10% in November.

From 2021 to 2022, despite the ongoing pandemic, economic recovery and rising inflation pressures prompt discussions of future rate hikes. In May of 2022, the RBA started increasing rates in response to rising inflation, quickly reaching 2.85% by November of that year.

As inflation persists into 2023, so do the rate increases, with the cash rate reaching 4.10% by June. The RBA pauses rate hikes in July amid signs of inflation easing. The cash rate was left on pause at 4.10% until November 2023, when it was increased again by 25 basis points to 4.35%. 

As of May 2024, the official cash rate has been left on hold at 4.35%. The RBA will continue to assess the economic conditions with the potential for further rate adjustments depending on inflation trends and economic growth. 

If you’d like to view Australia’s interest rate history chart, the RBA has published a data set detailing historical interest rates. You can also take a look at a table detailing the cash rate decisions that extends all the way back to January 1990.

Cash rate predictions

According to the RBA, the cash rate is assumed to remain around its current level of 4.35% until the middle of 2024 before declining to around the 3.2% mark by mid-2026. With that said, it’s important to understand that these forecasts aren’t set in stone. So, if you’re planning on making any major financial decisions, it’s a good idea to consider current interest rates and your individual circumstances.

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This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍