Expect competition to heat up in home loan market, say experts
The Reserve Bank of Australia (RBA) has met economists’ expectations with a 25-basis-point interest rate cut, bringing the cash rate down to 4.1%.
It follows one of the strictest monetary tightening cycles in recent history in which interest rates were hiked 13 times between 2022 and 2023, before holding at 4.35% for all of 2024.
Announcing the cut, the RBA under governor Michele Bullock (pictured) said: “Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance.
“However, upside risks remain. Some recent labour market data have been unexpectedly strong, suggesting that the labour market may be somewhat tighter than previously thought.”
Mortgage industry reacts
The cut to the cash rate has “been met with a huge sigh of relief by mortgage holders right across Australia”, said Gerald Foley, managing director at nMB.
“Despite a few reasons the RBA could have waited longer, there looks like enough indicators that inflation is tamed and time to give the economy a bit of a stimulus kick.
“Given that usually where there is one cut, there’s another just around the corner, borrowers will likely be looking out for another in April or May.”
“Of course, if we see a big-spending election campaign leading into an election before 17 May, then the cash rate may just sit now at 4.1% for a while,” Foley added.
Shane Oliver, head of investment strategy at AMP Bank, said: “The move reflects good news on underlying inflation lately resulting in downwards revisions to the RBA’s inflation forecasts and a slightly quicker return to target.
“However, the RBA sounded a bit cautious about future moves consistent with annual underlying inflation still too high, the labour market remaining strong, the Australian dollar being weak and uncertainty around Trump’s trade war.
“That said we expect further gradual cuts in May and August this year taking the cash rate down to 3.6%.”
The cut has given mortgage holders “some much-needed breathing room”, said Justine McDonald, a franchise owner at Nectar Mortgages.
“This move suggests they’re feeling more confident that inflation is under control and the economy needs a bit of a boost.
“A rate cut means higher borrowing power, which is great news for first-home buyers and investors. It could also drive up property prices as more buyers jump back into the market.”
However, McDonald warned that while lower rates might encourage more investment in rental properties, “the construction industry is still struggling to keep up with demand, so it won’t solve the rental crisis overnight”.
Mark Haron, executive director at Connective said the cut “marks a pivotal moment for many borrowers who have been managing higher repayments over the past few years… While we have not seen a significant rise in arrears, more customers are reaching out to their banks for relief – a sign of financial strain that this rate cut may help ease”.
Anticipation of this move has already driven strong activity in the mortgage market, with Connectiv’s data showing that January applications are up nearly $2 billion compared to the same period last year.
"We hope this is the first of at least three rate reductions this year, providing much-needed stability for borrowers,” said Haron.
Mortgage Choice broker James Algar has also seen deal activity surge, with more to come. He said: “Now that the Reserve Bank has cut the cash rate, I expect brokers will be seeing those borrowers who were just falling short of being able to refinance last year.
“My team and I have been extremely busy. The prospect of rates coming down has already led to an increase in the number of pre-approvals I wrote this time last year. Over January, my submissions were up 20% year on year.
“Now that the cash rate has been lowered, I think the surge in pre-approvals will continue.”
Anthony Waldron, Mortgage Choice’s chief executive officer, had some advice for buyers: “With this rate cut, I think we can expect competition to heat up in the home loan market and I encourage borrowers to seize this opportunity to secure a better rate. If you haven’t had your loan reviewed in the past year, chat with your broker to ensure your loan still meets your needs.
“If you’re looking to buy property soon – I'd make an appointment with your broker to make sure you’re ready to apply for a loan as soon as you find the right property.”
Uncertainly persists
It was a decidedly hawkish cut from the RBA, with the central bank stating: “Uncertainty about the outlook abroad also remains significant.
“Geopolitical and policy uncertainties are pronounced and may themselves bear down on activity in many countries if households and firms delay expenditures pending greater clarity on the outlook.
“Most central banks have been easing monetary policy as they become more confident that inflation is moving sustainably back towards their respective targets. But market expectations for further easing have moderated somewhat in recent months, particularly in the United States.”
