While the Reserve Bank of Australia (RBA) has kept the official cash rate at 4.35% fixed mortgage rates are slowly shifting across various providers. The times are changing, but these changes may influence the next steps that borrowers take by adding or subtracting from their present rate. Take a look at what has been occurring and its implications for homeowners and investors.
RBA Holds Cash Rate at 4.35%
The last policy meeting of the RBA has shown that the central bank is set on maintaining its cash rate on 4.35%. Since the last one year, cash rate has been stable because RBA is closely observing the economical environment, inflation rates and World circumstances. This stable rate affects variable mortgage rates which are used directly, fixed rates work slightly differently.
This decision is part of a ‘watch and see’&action is currently waiting for some rate cuts to be seen depending on the economic indicators. According to many analysts, it is estimated that rate reductions may begin maybe in the middle of the year 2024 depending on the inflation and other factors. Although some are still positive about cuts may come earlier than expected, the RBA still keeps a wait and see attitude to maintain economic stability.
Why Fixed Rates Are Changing Despite a Steady Cash Rate
Therefore, why are fixed mortgage rates changing if the RBA is yet to tinker with the cash rate? The answer to this lies in the method used by the lenders to come up with their rates. Basic rates are influenced by more than one factor different from the RBA’s cash rate, which include cost in the global market for borrowing and rate expectations from the competitive local lenders.
Fixed rates are also likely to change if the banks and lenders planning future changes within the economy or worldwide markets. For instance, if lenders believe rates may decline at some time in the future, they may lower present fixed-rates to entice borrowers. On the other hand, if they expect higher funding cost, or demand will increase, they may increase fixed rates.
Recent Rate Adjustments by Lenders
This week the focus on fixed mortgage rates by lenders has been somewhat mixed in the past week. Here’s a quick breakdown:
➤ Rate Increases: Two lenders, BOQ (Bank of Queensland) and ME, adjusted upwards its fixed rates by an average of 0.10%. The above change applies to owner-occupier and investor loans, with the changes in different tenors.
➤ Rate Decreases: Three lenders chose to cut their fixed rate and which was led by Greater Bank, ME and Northern Inland CU. They averaged about 0.13% and gave certain borrowers a new fixed rate that is lower than the floating rate.
Variable Rates Remain Unchanged
Fixed rates for a while have experienced some fluctuation, but variable mortgage rates remain the same. Fixed rates for owner-occupiers with principal and interest payments are around 6.83% at the moment while variable bottom figure is 5.75% held by Abal Banking.
So far, none of the lenders have changed variable rates as these rates are more correlated with the RBA’s cash rate. Variable rates tends to change where the RBA changes the cash rate, therefore they are expected to remain unchanged until next change is made by the RBA.
What This Means for Borrowers
For homeowners and investors, these mixed changes in fixed rates present both opportunities and challenges. Here’s what borrowers should keep in mind:
➤ Locking in Fixed Rates: For those who prefer predictability, fixed rates offer stability in repayment amounts. If you’re concerned about potential rate hikes in the future, locking in a fixed rate could be a good option. However, as rates can vary widely by lender, it’s essential to shop around to find the most favorable terms.
➤ Flexibility with Variable Rates: Variable rates offer the flexibility to benefit from potential rate cuts. While the RBA hasn’t indicated any immediate cuts, some experts believe that reductions may happen in the middle of 2024, depending on economic conditions. Borrowers on variable rates will be the first to see the benefits if cuts occur.
➤ Future Rate Cuts: Despite hopes for rate cuts in early 2024, the RBA has signaled that it’s unlikely. However, rate cuts could be possible after the release of February inflation data, with May as a more probable target. Borrowers should keep an eye on economic updates to plan accordingly.
The Impact of Global Factors
Global events also play a role in Australia’s rate landscape. For example, the recent 0.25% rate cut by the US Federal Reserve highlights an international shift towards lower rates, but the RBA is taking a more cautious approach. Additionally, political factors, such as a potential re-election of Donald Trump in the US, could influence global financial conditions and, indirectly, Australian interest rates. However, it’s too early to predict the exact impact these events may have.
If you find this article useful then you can check out our in-depth articles on our website.Want to know how you could save thousands on your mortgage? Book a free chat with ASK Financials today!
