Home loan watch: when will interest rates finally come down? Expert forecasts explained

Key Points

• The RBA left the cash rate unchanged at 4.35% during the latest monetary policy meeting on 9-10 December 2024.
• Interest rates will likely decrease when inflation reaches the 2% to 3% RBA target band, predicted for May 2025.
• Home loan interest rates have already started to drop, including some Big Four rates. 

The Reserve Bank of Australia (RBA) maintains that its number one enemy is inflation. If inflation stays high, so will home loan interest rates.

But with many households experiencing mortgage stress, more rate rises in 2024 are the last thing Australians want. So instead, let’s think long-term, optimistically.

When will interest rates finally come down?

TL;DR: It's unlikely. 

Back on 6 August 2024, after announcing yet another cash rate hold, Governor Michele Bullock told the press that the RBA doesn’t expect to make any cuts in 2024. 

“I think what the Board’s feeling is that the market path at the moment is pricing in interest rate reductions by the end of this year. 

“I think the Board’s feeling is that the near term, by the end of the year and the next six months, given what the Board knows at the moment and given what the forecasts are that that doesn’t align with their thinking about interest rate reductions at the moment,” said Bullock. 

The same sentiment now echoes among economists at the Big Four banks, including CommBank who pushed its prediction back (again) from December 2024 to February 2025.  

Unfortunately, this means mortgage rates are likely to stay high until we finally hit the RBA’s inflation goal, which is a flexible target of 2-3% per year. 

The October Consumer Price Index (CPI) data – a measure of Australia’s inflation rate – recorded trimmed mean inflation at 3.5% in the year to October 2024. This means inflation increased from the previous month (3.2%) and has returned to where it was in August 2024. 

These inflation figures have prompted experts to reassess their forecasts, including the Big Four banks. 

RBA cash rate cut forecasts from Westpac, NAB, CommBank & ANZ (4 December 2024)

Economists at ANZ predict the RBA’s first cut will come in May 2025, followed by another cut in August 2025, to take the cash rate down to 3.85%. 

NAB pushes back cash rate cut prediction to May 2025

Updated: Friday, 15 November 2024

Back on 30 September 2024, NAB pushed its RBA rate cut prediction forward to February 2025. Now, citing a hot labour market, NAB forecasts the first cut to come in May 2025, followed by a steady flow of one cut per quarter until the cash rate settles at 3.10% by mid-2026. 

This cut-call comes off the back of NAB's 40 basis-point interest rate cut on its Base Variable Home Loan, now 6.44% (6.48% p.a. comparison rate*), on 14 November 2024. 

Is the proof in the fixed-rate pudding?

Now that home loan lenders have sensed a lull in the rate-hike cycle, many have started cutting their fixed and variable rates – including some of the Big Four.

Mozo banking and rates expert, Peter Marshall, says these fixed-rate cuts could indicate the conviction the Big Four have in their interest rate predictions. 

"Fixed rates are shaped by lenders’ forecasts of where interest rates are headed,” he said.  

“Since these rates stay the same for the fixed rate term, and banks aim to balance the returns from loans with the cost of deposits, there’s a chance fixed rates will be higher than variable when the cash rate drops.

“Choosing a fixed rate today could be tempting, but borrowers should also consider the likelihood of upcoming rate cuts by the RBA before making their decision."

The Big Four home loans that have moved in recent weeks include NAB’s Tailored Home Loan (Fixed), Westpac’s Fixed Options Home Loan, and CBA’s Fixed Rate Home Loan (Wealth Package), variable rate Extra Home Loan, and Standard Variable Rate. 

But fixed-rate cuts aren’t only coming from the Big Four. There have been a whole host of banks and home loan lenders cutting interest rates this month, including Newcastle Permanent, Great Southern Bank, Macquarie, MOVE Bank, and ME.

How can homeowners save mortgage costs?

After 13 cash rate hikes, Aussies have been forking out thousands of dollars more on average than they were previously, with borrowers who have larger loan balances affected the worst. 

If you’re struggling with the loan you already have, making lifestyle changes, calling your lender, and investigating whether to refinance can all be good options for handling mortgage pain. The best path for you will depend on your situation. 

However, if you’re hoping to buy a home despite the inflationary environment, consider these three ways to break into the property market – all while checking your application for these lending red flags. 

Compare low-interest rate home loans below.