Could rates rise again before Christmas? All four big banks now think so

By Andrew Paterson

All four of Australia’s big banks now expect the Reserve Bank to lift rates again before Christmas. That makes now a good time to check where your home loan stands.

After three back-to-back rate hikes earlier this year, the Reserve Bank of Australia (RBA) kept the cash rate on hold at 4.35% in June and August.

That breathing space may be coming to an end.

NAB, Commonwealth Bank, ANZ and Westpac all now forecast a 0.25% rise this year. The RBA’s next decision is due on Tuesday 29 September.

Here’s what’s behind the shift, and how you can plan ahead.

Inflation is running hotter than expected

The RBA aims to keep inflation between 2% and 3%. After its August meeting, it said it will “do what it considers necessary” to get there, including raising rates further if needed.

The latest figures haven’t helped. Annual inflation was 3.5% in July, while trimmed mean inflation, an underlying measure the RBA watches closely, held at 3.6%.

Both sit above the target band. Within a day of that release on 26 August, NAB, Commonwealth Bank and ANZ changed their rate calls, and Westpac followed on 8 September.

September or November?

The big banks agree on the direction of the next move. Where they differ is the timing.

NAB expects a 0.25% hike when the RBA Board meets on 28-29 September. It also sees a risk of a second rise in November.

Commonwealth Bank and ANZ expect a 0.25% rise at the RBA’s 2-3 November meeting, taking the cash rate to 4.60%.

Westpac held out the longest. It had expected no further hikes this year, but it now sees a November rise as its base case.

The August inflation figures are due on 30 September, the day after the September decision. They will feed into the RBA’s thinking ahead of November.

What a rise could mean for your repayments

If the banks are right, the cash rate would climb from 4.35% to 4.60%. That would be its highest level since 2011.

According to analysis by Canstar, a 0.25% rise could add around $91 a month to repayments on a $600,000 loan with 25 years remaining.

On an $800,000 loan, repayments could rise by about $121 a month. On a $1 million loan, the increase is about $152.

Those estimates assume an average variable rate and that lenders pass on the full rise. Your own figures will depend on your rate, balance and remaining term.

How to prepare now

Nobody can say for certain whether rates will rise before Christmas. Planning ahead costs nothing, though, and a few simple checks can help.

• Know your rate. It gives you a baseline to judge whether you’re paying more than you need to, whatever the RBA does next.
• Compare it with the market. Canstar puts the average owner-occupier variable rate on its database at 6.62%.
• Test your budget. Work out how an extra 0.25% or 0.50% on your loan would fit into your monthly spending.
• Use your loan features. Extra repayments or an offset account can reduce the interest you pay.

Competition among lenders is strong. In August, Canstar counted 49 lenders offering a variable rate below 6%, with the lowest at 5.69%.

These loans usually come with conditions, such as a minimum deposit or level of equity, so they won’t suit every borrower. We covered what a competitive rate looks like in more detail last month.

Why wait for the RBA?

We can tell you today whether you could save by refinancing to a new loan or lender. We can also help you ask your current lender to sharpen your rate.

Get in touch to see how your loan compares, and whether a lower rate or better features could be within reach.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to your circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.