Expert weighs impact on homeowners
Markets are pricing in four interest rate cuts from the Reserve Bank of Australia (RBA) over the next 12 months, marking a shift in expectations since the central bank began raising rates in May 2022.
The ASX RBA Target Rate Tracker, which calculates the probability of changes to the Overnight Cash Rate based on short-term interest rate futures, shows that markets expect the RBA to reduce rates by 25 basis points in February 2025. Three more cuts are projected by August, as the central bank is scheduled to meet eight times in 2025.
According to comparison website Finder, four rate cuts would offer significant savings for homeowners. Based on Australian Bureau of Statistics (ABS) data, the average mortgage is currently $641,143. A 100-basis-point reduction would lower the OCR from 4.35% to 3.35%, which would save the average homeowner $5,076 annually, or $423 per month. Even a single rate cut could reduce monthly payments by $107, translating to nearly $1,300 in annual savings.
However, rising mortgage costs continue to be a challenge. In a September survey by Finder, 40% of homeowners reported struggling to make their monthly mortgage payments, while 17% had either missed a payment or sought hardship assistance. Additionally, only 28% of Australians believe now is a good time to buy property.
Graham Cooke (pictured above), head of consumer research at Finder, noted that while rate cuts would provide financial relief, they could also boost housing demand and drive up prices.
“This could make it harder for first-home buyers to enter the market, even with lower borrowing costs,” Cooke said.
He also highlighted that homeowners with fixed rate loans would not immediately benefit from rate cuts but could see better refinancing options when their loans revert to variable rates.
Cooke cautioned that while the ASX Tracker shows market sentiment, it does not guarantee the RBA will follow through with the predicted rate cuts. He advised homeowners to explore lower-rate options, as many lenders currently offer variable-rate loans starting at 5.69%, with over 30 products on the market.
He added that despite potential future rate cuts, economic uncertainty remains. He then advised homeowners to remain cautious and consider switching lenders if they are currently on higher rates.
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