Why rate rises have been lower than expected

The average interest rate charged on home loans has, surprisingly, increased by less than the series of cash rate hikes during 2022 and 2023.

Between May 2022 and September 2023, the cash rate increased by 4.00 percentage points, whereas interest rates on outstanding mortgages increased by an average of only 2.90 percentage points, according to the Reserve Bank of Australia (RBA).

The RBA said this was partly because, even as the cash rate was rising, a lot of people remained on low-rate fixed loans, which brought down the average mortgage rate.

But it was also due, in part, to “the effect of competition between lenders on variable-rate housing loans” and “the willingness of banks to negotiate discounts to retain existing customers”, because variable interest rates increased by an average of only 3.31 percentage points during the same period.

The year that was

With Christmas approaching, it’s worth reflecting on what a volatile year this has been. 

The cash rate started the year at 3.10% and reached 4.35% by November, with the RBA raising rates at five of their 10 monetary policy meetings and leaving them on hold at the other five. The big four banks believe the RBA has now ended its tightening cycle and will actually start reducing the cash rate in late 2024.

The property market was also unpredictable. The national median price fell in January, for the 10th consecutive month, but then rose in the nine consecutive months to October, according to CoreLogic. As a result of that collective 7.6% price gain, the national median ended October only 0.5% lower than the record price posted in April 2022.

In other major news from 2024:

• Borrowers fought back against rising interest rates – a record $21.577 billion of home loans were refinanced in July.
• A booming population put pressure on our housing supply – annual population growth reached 2.2%, the fastest in 15 years. 
• Housing supply became a big political issue – the federal government set a target to build 1.2 million new homes in the five years from July 2024.
• But residential construction activity actually declined – the number of new home builds started in the June quarter was 15.4% lower than the year before.
• Rental properties remained hard to find – the vacancy rate in October was just 0.8%, exactly the same as the year before.
• As a result, rents continued to soar – the national median rent jumped 8.1% in the year to October.
• The federal government expanded its first home buyer support – allocating 35,000 places to the First Home Guarantee in the 2023-24 financial year and 10,000 to the Regional First Home Buyer Guarantee.

It’s highly likely 2024 will be another big year for the home loans and property markets, especially if interest rates eventually fall and property prices keep rising, as forecast.

If you’d like help buying your own home, purchasing an investment property or refinancing to a better loan, get in touch.