Reprieve for mortgage holders as RBA leaves interest rates on hold

Mortgage holders have been given a welcome reprieve following the Reserve Bank’s decision to hold interest rates steady for the second time this year but further tightening could come next month.

At its monthly meeting on Tuesday, the RBA board left the official cash rate unchanged at 4.10%.

In a statement, RBA governor Philip Lowe said inflation in Australia had passed its peak and the monthly CPI indicator for May showed a further decline.

But he added, inflation is still too high and that it will remain so for some time yet.

“The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so.

“In light of this and the uncertainty surrounding the economic outlook, the Board decided to hold interest rates steady this month. This will provide some time to assess the impact of the increase in interest rates to date and the economic outlook.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve,” he said.

PropTrack Senior Economist Paul Ryan said the RBA judged that recent data on the labour market and inflation was in line with its expectations, and opted to wait for additional data on inflationary pressures and productivity growth, in particular.

“Nevertheless, the RBA signalled that more tightening may be needed to rein in inflation, with many expecting another hike – the 13th since May 2022 – to come as early as next month,” he said.

“More tightening is expected to be needed to bring inflation back to the RBA’s target, but rates are close to their peak, which is good news for the housing market.”

The housing market has so far shown remarkable resilience to sharply higher interest rates, Mr Ryan said.

The PropTrack Home Price Index revealed Australian home prices jumped again in June, rising 0.3% month-on-month.

Further interest rate rises are expected to bring inflation back to the RBA’s target. Picture: Getty

National prices were now just 0.1% lower than they were a year ago, and across the capitals, prices were now higher than at the same time last year.

“Despite rates now at levels not seen since 2012, home prices increased further in June, and are up 2.3% over 2023 so far,” Mr Ryan said.

“Offsetting higher mortgage rates, strong buyer demand has been focused on a slower flow of new property listings and led to price increases.

“Forward indicators point to further home price growth in the months ahead. But continued higher interest rates remain a risk for the housing market.

“At some point, eroded borrowing capacities and weaker economic conditions brought about by higher interest rates may lead to price falls, as seen in 2022.”

Homeowners to breathe a sigh of relief following pause

Angus Raine, Raine & Horne Property Group executive chairman, said with inflation figures looking much healthier hopefully the RBA will now take its foot off the “interest increase pedal.”

“It’s really great news. People – mum and dad Australians – can sit down and probably plan a more short, or medium, and longer term view on what they’re doing with their Australian real estate,” he said.

“Listings in the market are just at an all-time low. So there has to be a shakeout, whether for positive reasons or not so positive, it means there could be opportunities for buyers out there.”

National home prices increased for a sixth consecutive month in June and are up 2.3% so far this year. Picture: Getty

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Homeowners around Australia will be breathing a sigh of relief following the RBA’s decision after 12 cash rate increases since May 2022, Mortgage Choice chief executive Anthony Waldron said.

“We’ve seen borrowers rushing to get a better deal during June, before many lenders stopped their cashback offers on 30 June,” he said.

“Mortgage Choice home loan submission data shows the biggest spike in refinancing activity this year, with 52% of all loans submitted by Mortgage Choice brokers in June being refinance transactions.”

It remained to be seen if there were more rate rises to come, Mr Waldron said, but the start of a new financial year was a great time for mortgage holders to meet with their broker and review their home loan to ensure they were getting the best possible deal.

Another rate hike expected as soon as next month

Property analyst and commentator Gavin Hegney said the RBA’s decision was simply saying, ‘Take a breath this month,’ as a rise was likely next month.

He said it was important to note that while interest rates affected how much money one could borrow, people were still prepared to borrow.

“Where we are leading with this is to an increase in unemployment because one person’s spending is another person’s income,” he said.