RBA leaves cash rate at 0.25%. What's the outlook for home loans?

The Reserve Bank of Australia kept interest rates unchanged at its latest policy meeting, as the country continues to grapple with the fallout from the coronavirus pandemic. 

While the economy is performing better than initially feared, the Board once again urged the government to maintain the flow of support to households and businesses, which is scheduled to expire in September.

To its credit, the government recently hinted at a future multibillion-dollar package to help small businesses stay afloat beyond the pandemic, or assist operators of troubled firms to start new businesses.

RBA Governor Philip Lowe also acknowledged that there have been some positive developments - including a pick-up in retail spending - but the overall economic outlook remains uncertain and “recovery is expected to be bumpy.”

The situation has also been worsened by the recent surge of infections in Victoria, which has led to closures of the NSW-Victorian border and placed parts of the state under strict lockdown. 

Failure to contain the spread could plunge the economy back into hibernation — and potentially deal a greater blow to consumer and business confidence than the initial outbreak.

As expected, the cash rate and three-year yield target were kept unchanged at 0.25%. The Board has made clear that both will remain at their current setting until employment recovers and inflation is within the 2-3% target range.

As for its bond purchasing program, activity has been kept to a minimum since the initial round of purchases back in March. To date, $50 billion in government bonds has been bought.

Where do home loans rates currently sit?

Banks and lenders continue to sharpen home loan rates to attract borrowers. Right now, the average 2-year fixed rate among lenders in our database is 2.56% p.a., while the average variable rate sits at 3.42% p.a.

We’re also beginning to see home loan rates dip below the 2% mark. In June, Bank of Us introduced the Special FlexiDiscount Home Loan, which offers fixed rates as low as 1.99% p.a. (2.64% p.a. comparison rate*). However, this is only available to residents of Tasmania.

While this could offer some clue into what’s in store for home loans, Mozo’s banking expert Peter Marshall suggests there’s not much more room to cut, and in the future we’ll likely see lenders competing via one-off cashback offers rather than direct rate discounting.

“I think there's going to continue to be a lot of competition out there, but it seems to me that rates are probably very close to as low as lenders would want to take them,” he said. 

How about savings accounts and term deposits?

Of course, the flipside to all this is it’s becoming harder for Australians to find a worthwhile place to park their savings. Currently, the average ongoing savings rate (on balances of $10,000) among providers we track sits at 0.70% p.a.

86 400, Bank of Queensland and Up continue to offer ongoing bonus rates of 1.85% p.a., so long as account holders satisfy certain monthly conditions, and Macquarie offers an introductory rate of 2.00% p.a. which is available for four months (before reverting to 1.35% p.a.). 

Meanwhile, the current highest base rate in our database is 1.65% p.a., offered by the Volt Savings Account. This is available on balances up to $245,000 and doesn’t require account holders meet any monthly requirements to be eligible.

As for term deposits, 64 out of 82 providers in our database made reductions to at least one term last month, leaving the average 12 month term deposit rate at just 1.11% p.a. — a 14 basis point drop from the previous month. 

For more information, visit our home loan, savings account and term deposit comparison pages. And if you’re after tips to keep your finances in good health amid the current crisis, browse our coronavirus financial guide