Mozo Money Moves: With unemployment up and fixed rates down, is it time to bet against the house?

This week the Australian Bureau of Statistics (ABS) released some highly anticipated data, including figures on the labour force and wage growth. 

As these data sets provide crucial insights into the strength of the labour market and inflationary pressures, both of which the Reserve Bank of Australia (RBA) closely monitors when setting monetary policy, they are likely to influence the next decision on whether to move the cash rate. 

However the conflicting information could be tricky for the RBA to interpret.

On the Mozo database this week we also noted some significant cuts to fixed rate home loans, with one of the larger banks slashing up to 0.76% off rates across multiple terms. Which begs the question, to fix or not to fix?

Let’s jump in! 

RBA Moves

The latest Labour Force data for July, released on Thursday by the ABS, revealed that unemployment had risen to 4.2%. Despite the rise in unemployment however, the employment to population ratio rose to 64.3%, just below its historical peak.

The increase in unemployment next to a high employment to population ratio suggests that the increase in population is what is continuing to outpace the slowdown in economic activity.

These conflicting data points show that while the labour market remains tight, the effects of 13 rate hikes are contributing to the rising unemployment rate. Though a rising unemployment rate is often the intended consequence of taming inflation, it seems the rate at which unemployment is rising is simultaneously being moderated by population growth.

"The rise in unemployment alongside a high employment to population ratio close to the historical peak highlights the complexities of the current labour market and the challenge the RBA faces when making cash rate decisions,” says Mozo finance expert Rachel Wastell.

“While the unemployment rate is moving in the direction needed to bring inflation back to target - and secure a much-anticipated rate cut for borrowers - predicting with certainty the timing of such a cut is proving quite difficult.”

“As RBA Deputy Governor Andrew Hauser recently pointed out in his speech ‘Beware false prophets’ the world is inherently complex and therefore it’s crucial to look beyond single data sets and avoid overreacting to isolated figures.”

“For borrowers, the key takeaway from this data is to prepare for a potentially extended period of high rates, and remember that even if a rate cut does occur later this year, it's unlikely we’ll ever return to the time when home loan rates started with 2.”

“The best approach is to proactively manage your money, cut out unnecessary expenses, or contact your lender to see if you can negotiate a better rate. That way, you can avoid relying on uncertain predictions about future rate cuts and instead take control of your own financial situation.”

Home Loan Moves

This week several lenders cut their fixed home loan rates on the Mozo database as expectations that the RBA will lower the cash rate later this year begin to grow in popularity.

Macquarie led the charge on Tuesday, slashing its Basic Home Loan rates by up to 76 bps across various terms, and MOVE Bank followed on Wednesday with some 30 bps cuts. South West Slopes (SWSBank) also reduced its 3-year fixed rate by a lower 10 bps and Community Bank introduced new fixed rate specials with its three year term coming in at 5.59% p.a. (6.29% p.a. comparison rate*)

Today, the Bank of Queensland cut 2 to 5 year terms between 30 and 50 bps depending on the borrower type and Police Bank also cut some rates by up to 70 bps.

“The downward trend for fixed rates is making these home loan products increasingly attractive for mortgage holders, but borrowers need to consider the impact of locking in a comparably ‘low’ rate now when the RBA is predicted to start cutting the cash rate in the next year,” says Wastell.

Looking at the trajectory of average fixed rates for $400,000 owner occupier home loans since the cash rate hiking cycle started in May 2022, you can see how these rates follow predictions. 

For instance, the average fixed rate started to drop at the beginning of 2024. when many banks were confident a cut would come in the September quarter, then increased when the Big Four banks changed their cut forecasts to later this year or early next.

“Fixed rates are predictive and reflect lenders’ expectations of future interest rate changes, and since a fixed interest rate doesn’t change for the length of the term, lenders set fixed rates based on what they think they’ll need to recoup during that period.” 

'Fixed rates provide stability and can be a good choice for those who prefer predictability, but it's important to remember you are essentially betting against the house, and if rates drop you could end up paying more in the long run.'

“There are pros and cons to fixed rates that borrowers should be considering as some of the leading fixed rates start to come down below 6%. While opting for a fixed rate loan now has its advantages, offering protection against rate hikes, there’s a risk you could miss out on savings after a rate cut.”

“If you’re not sure and want to hedge your bets, you might want to consider splitting your loan between fixed and variable rates. This allows you to enjoy the stability of fixed rates while still benefiting from potential reductions in variable rates.”

Top 3 Year Fixed Rate Home Loans

*WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

Fixed Rate Home Loan Insights

• Thinking about fixing your home loan? Here’s what Macquarie’s fixed rate changes look like across various terms.
• Still lucky enough to be on a low fixed rate, but not sure how much your repayments will jump when your term ends? Try Mozo’s fixed-rate ending calculator.
• Thinking about hedging your bets and splitting your loan between a variable and fixed rate? Here’s what a split home loan is and how it works.

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As a part of Mozo’s commitment to making your money count for more, each month we “roundup” the rate changes, key banking trends and money moves in the Australian personal finance market. 

If you’d like to see the analysis in full once it’s released, you can subscribe to receive the Mozo Banking RoundUp here.

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