Home loan interest rates to remain steady

*This content article has been updated as of Monday 30 September, 2024.

Australian borrowers have experienced their fair share of interest rate rises, with 13 increases over 15 months since May 2022. However, after a tough few years for borrowers, the Reserve Bank of Australia left the interest rates unchanged once again at their June board meeting.

Let’s take a look at the impact of the recent interest rate updates.

RBA announcement of interest rates

In the latest home loan interest rate news, the Reserve Bank of Australia (RBA) decided to leave the interest rates unchanged at a 12-year high of 4.35% at their September 25th meeting. This marks the 7th board meeting in a row where the RBA has left the interest rate on hold. With inflation still sitting above the target rate of 2-3%, the RBA has decided to hold off on changing the interest rate for now.

RBA Governor Michele Bullock confirmed the Board had discussed a rate hike during their recent meeting but decided against it, choosing to keep the current rate on hold instead.

Michelle suggested that Australia is currently navigating a "really complex part" of the cycle. As a result, the RBA is trying to carefully balance bringing down inflation while keeping the economy from falling into a recession.

In spite of overseas central banks making moves to cut interest rates, including the Bank of Canada and the European Central Bank (ECB), the RBA decided to hold the cash rate steady at its June meeting. With the cash rate currently on hold, all eyes are on the next August RBA meeting, which will come off the back of the June quarter CPI inflation read.

What the latest rates announcement means for borrowers

While the decision to leave rates steady might not necessarily bring the rate relief some borrowers were hoping for, it sure beats another interest rate rise.

Despite the rise in interest rates over the past couple of years, there hasn’t been a huge spike in mortgage defaults as was initially expected. Instead, the gradual increase in borrowers falling behind on their mortgages is just a "normalisation" according to NAB economist Tapas Strickland.

Recent APRA Quarterly ADI Property Exposure data suggests borrowers nationwide have a record amount sitting in their offset accounts and redraw facilities. These savings buffers, built up during the pandemic, are allowing many households to navigate this period of high interest rates. This, combined with the fact property prices continue to rise despite high rates, could be a point of solace for many homeowners.

Although interest rates have remained unchanged since November 2023, the new financial year has brought tax cuts for a large proportion of Australian taxpayers. These cuts are designed to alleviate some of the cost-of-living pressures, helping Aussies cover everyday expenses.

RBA interest rate forecast

So, what’s on the cards for interest rates? While inflation has been easing, the process has been slower than originally anticipated. Most economists are still set on the next RBA move to be down, exactly when the rates will start dropping is still up for debate. Challenger chief economist Jonathan Kearns thinks the RBA will hold off on cuts until 2025, while Westpac economists are anticipating a November cut. However, they had initially predicted a September cut, but that’s been pushed back after inflation proved tricker to tame than expected.

With inflation still sitting above the target rate of 2-3%, the RBA is hesitant to start reducing the cash rate. Countries around the world are still feeling the effects of the pandemic, with global growth slower than expected and inflation still tracking above target in many countries.

Back on home soil, economic growth also remains sluggish. In the May 2024 Statement on Monetary Policy the RBA indicated that inflation has been higher than expected and labour market conditions have proven stronger than anticipated. Higher interest rates have led people to cut back on spending, which is slowing economic growth and bringing demand into better balance with supply. While labour market conditions have eased slightly, unemployment remains low.

The RBA is adamant the path of interest rates will best ensure inflation returns to target, however the timeframe remains uncertain. With this in mind, the Board isn’t ruling anything in or out. At this stage, the RBA expects inflation to return to the target range in the second half of 2025 and to reach the midpoint in 2026.

That said, the economic outlook remains uncertain, with recent data suggesting that returning inflation to target is unlikely to be smooth. For now, borrowers will just have to wait and see what the future holds for interest rates. If the last few years have taught us anything, it’s that everything can change at the drop of a hat, so we’ll just have to wait and see what the next year or two has in store for interest rates.

Unfortunately, we don’t have a crystal ball that allows us to see into the future of interest rates. So, for now, the best we can do at Unloan is to offer competitive interest rates and a range of nifty loan features for you to take advantage of. Whether you’re looking to buy a home or refinance, we’ve got you covered at Unloan.  

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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 independent taxation and financial advice before making any decision based on this information.

Unloan is a division of Commonwealth Bank of Australia.

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