Rates on hold but competition increases among lenders
Market ANALYSIS & OpINION
Loan Market Excel Finance Broker Adam Wallace-Harrison explores the Reserve Bank’s latest decision to hold rates.
The Reserve Bank of Australia (RBA) has maintained the official cash rate at 4.35% for the sixth consecutive meeting, citing high inflation and an overheated economy. In its latest monetary policy statement, the RBA acknowledged the significant uncertainty surrounding potential rate cuts and the resulting relief for borrowers.
The RBA's statement indicated that although labor market growth has peaked, it still poses an inflation risk. Conversely, slow GDP growth, a rising unemployment rate, and reports of businesses under pressure could potentially exert downward pressure on inflation.
Historically, the RBA has been slower to cut rates because it didn't raise them as high as other central banks, and therefore doesn't need to lower them as much to return to a more normal level. However, the RBA appears to be extending this timeline further than many observers might expect.
The RBA seems intent on waiting until inflation is nearly back to its target range of 2 to 3 percent before considering rate cuts. Although inflation has significantly decreased from its peak in 2022, the RBA does not expect to reach its target until late 2025. This cautious approach raises questions about whether the bank might be waiting too long to cut rates.
Predicting the future of interest rates is challenging, and even experts frequently get it wrong. Personally, I don't foresee the RBA cutting rates in 2024. Despite limited supply and rising demand driving up property values and rental demand nationwide, the RBA seems unlikely to reduce rates until the first half of 2025 (obviously happy to be proven wrong here).
While the RBA's cash rate remains unchanged, we're still seeing interest rates come down due to increased competition among lenders. Many lenders, having expanded their staff and technology during and after COVID, are now eager for business. This competition is driving lenders to cut rates to attract new customers, and retention teams are working hard to keep existing ones. This makes it an excellent time to negotiate for better rates.
Currently, good owner-occupied principal and interest (P&I) rates range from 5.99% to 6.14%. Investment P&I rates range from 6.24% to 6.44%, and investment interest-only (I/O) rates range from 6.49% to 6.69%. The best recent fixed rate I've seen is a 3-year fixed rate of 5.79% for owner-occupied P&I. These fixed rates can offer insight into potential future rate trends.
In terms of lender policies, many are adopting creative strategies to attract new business, especially for self-employed borrowers. Assessment rates (actual rate plus 3%) are still high, around 9% to 9.5%, affecting borrowing capacity. However, second-tier lenders are entering the market with more flexible policies and better borrowing capacities, enabling borrowers to secure the necessary loans.
For new lending, assessment rates are around 9% to 9.5%, but for refinances, the rate is the new rate plus 1%, or about 7.15%. This allows us to get clients into loans with second-tier lenders and then potentially refinance them to major lenders once all criteria are met.
There are many variables to consider, so please reach out if you need more clarity. With over 60 lenders on our panel, we can often find suitable solutions for your needs.
To get in touch with Adam call 1300 003 414 or email excel@loanmarket.com.au
“While the RBA's cash rate remains unchanged, we're still seeing interest rates come down due to increased competition among lenders.” - Adam Wallace-Harrison
