With inflation turning out to be less severe than expected, the Reserve Bank of Australia has offered a holiday-season gift to homeowners by keeping the cash rate steady at 4.35%.
This move was largely anticipated by economists, with 82% (31 out of 38) predicting a hold in December’s Finder survey. Many analysts pointed to the synchronization of wages with inflation, signaling a positive trajectory for the economy.
However, the lingering effects of 13 previous rate hikes are still affecting household budgets, creating a delayed impact. While there’s a respite this month, financial challenges persist for many Australians.
Reserve Bank Governor Michele Bullock (pictured above on the far left) noted that despite the economy experiencing a period of below-average growth, it demonstrated greater strength than initially projected in the first half of the year.
The impact of the Reserve Bank’s successive cash rate increases is evident in the significant transformation of mortgage products.
Prior to the cash rate hike in May 2022, Canstar listed 5,199 owner-occupied and investment rates below 5.50%. However, currently, there is only one such product available—a three-year fixed rate at 5.48% offered by Australian Mutual Bank.
The lowest variable rate on Canstar as of May 1, 2022 (pre-dating the initial cash rate increase) stood at 1.58%. In contrast, on December 4, 2023, the lowest variable rate has surged to 5.69%, marking a substantial difference of 4.11 percentage points.
This shift coincided with the peak of refinancing activity in July, gradually subsiding in the subsequent months. Nevertheless, there remains a considerable number of individuals yet to refinance from these historically low rates.
Despite the changing landscape, opportunities for savings persist, presenting brokers with the chance to deliver significant value.