Lenders comment on 'line ball' call
The Reserve Bank of Australia has delivered its verdict on the official cash rate, announcing no change on Tuesday.
The interest rate on exchange settlement balances has also remained the same at 3.50%.
In what has been referred to as a “line ball decision”, the April decision leaves the official cash rate at 3.60%, providing a welcome reprieve for borrowers after two interest rate rises this year, a total of 10 since May 2022.
Ahead of the decision, bank economists were divided in their forecasts – ANZ and NAB forecasted a 0.25% rise, while CBA and Westpac predicted a pause.
Announcing the April monetary policy statement on Tuesday afternoon, RBA governor Philip Lowe indicated the central bank had weighed up the 3 ½ percentage points of rate rises to-date and the delayed impact on borrowers, and moderating inflation.
“The Board took the decision to hold interest rates steady this month to provide additional time to assess the impact of the increase in interest rates to date and the economic outlook,” Lowe said.
The board placed a high priority on returning inflation to its target range of 2% to 3% over time and said that it expected some further tightening may be needed to ensure that inflation recedes to this level.
“The decision to hold interest rates steady this month provides the Board with more time to assess the state of the economy and the outlook, in an environment of considerable uncertainty,” Lowe said.
Mortgage Ezy CEO Peter James (pictured above left) told MPA that he agreed with the RBA’s decision to pause in April, describing it as “courageous” and “the right move”.
“We've had extreme pressure from the Federal Reserve raising rates (in March), despite the conditions of the failure of the US banks and the difficulties of Credit Suisse and others,” James said. “It's great to see that the Reserve Bank is thinking for itself and making good decisions.”
James also noted that inflation had eased from 7.4% to 6.8% in the year to February, further supporting the RBA’s view that inflation in Australia had peaked.
Many borrowers are “on the knife’s edge”, James said. With around 45% of the existing cash rate hikes having been passed through to mortgage repayments (according to CBA), he expected more interest rate pain to come.
“Many borrowers are coming off very low fixed interest rates that they’ve enjoyed over the last two or three years … the last thing that we need is another interest rate hike,” James said.
James said that the inflationary factors of today were very different from the past. Research indicates that inflation is not exacerbated by wage growth or consumers – it is influenced by suppliers taking advantage of the situation and price gouging, he said.
Further interest rate hikes would achieve nothing, aside from hurt everyday ordinary Australians, he said.
Great Southern Bank head of broker partnerships Mat Patterson (pictured above right) said that while the pause in April would be met with some relief, it may not be the end of official cash rate rises.
“There’s also a large number of customers on fixed rates that still haven’t felt the impact of the rate rises to date. We will continue to help customers manage the change from fixed to variable as their fixed loans end,” Patterson said.
With investors seemingly sitting on the side lines for the last 12 months, Patterson said that the April pause may present an opportunity to breathe some life back into the investor market.
“I see investors taking a degree of confidence from today’s announcement, from a serviceability perspective we may be getting close to the top of the current cycle,” Patterson said.
Trends around new lending, refinancing
After what he describes as a “huge lull” in activity over January and February, James said Mortgage Ezy was starting to see borrowers return. The company’s March figures were “up significantly” and only marginally below last year (before the current hiking cycle started).
Overall, James said that purchasing activity was “incredibly subdued”.
“Our loans which generally were 50% refinance, 50% purchases last year are now well and truly 80% refinances, if not slightly more,” James said.
When borrowers anticipate the current hiking cycle is coming to an end, James said he expected new housing lending to pick up. Currently, the biggest issue for new borrowers and those wanting to refinance is serviceability, he said.
“There are a number of people that would like to borrow but are trapped in their current loan. The reason being is that values have gone down across the board,” James said.
“If they've recently borrowed, their valuation may not justify a new loan even at current borrowings. And the biggest one is just simply that their wages have not increased anywhere near what they need to actually refinance.”
Patterson said that the lion’s share of home lending activity was clearly going to the refinance market, where there was still strong competition in terms of cashback offers.
“We’re seeing significant increases in the popularity of offset accounts, both in terms of new accounts opened and in the increased amounts people are putting into their offset,” Patterson said.
Great Southern Bank’s purpose is to help Australians to own their own home, and the bank was still very much in that market, ready to help first home buyers, he said.
“Our share of the first time buyers’ market has actually increased, although the overall size of that market has reduced,” Patterson said.
Working with brokers and clients
While Mortgage Ezy had noticed an uptick in client arrears, James said that while they were higher than a year ago, they remained historically low.
As brokers help borrowers continue to make ends meet as interest rate rises flow through to scheduled mortgage repayments, James said it was important to keep in mind that “this too shall pass”.
At the same time, the potential effects of more interest rate pain should not be underestimated, he said.
Patterson said that as a customer-owned bank, Great Southern Bank’s focus would remain on its customers’ needs, and its natural first step was to look at ways it could help customers with rate increases as they continue to flow through.
“We are communicating with fixed rate customers six months prior to the change, so they understand their options. We’ve also helped over 10,000 customers with payment plans and hardship arrangements already in the first half of the financial year,” Patterson said.
He acknowledged the hard work undertaken by brokers to support existing and new customers, noting that even a single rate rise could change calculations around servicing and budgeting.
“Our focus is to make brokers’ lives as easy as possible from our end. For example, many loan applications are unconditionally approved with 48 hours of being lodged, and we can now have documents in the customer’s inbox almost immediately after formal approval, ready for electronic signing via Docusign,” Patterson said.
“Recently, we were rated first among small banks for broker experience, and we delivered the highest on-time settlement outcomes across the industry.”
