The RBA is set to meet next Tuesday, and the chances of a rate rise to 1.75% seem to be ‘slim to none’ according to the majority of experts.
The official cash rate has been at 1.50% since it dropped to that level in August last year, and although there are many indicators that rates will be on the rise in the future as the RBA inches up toward a ‘neutral’ cash rate of 3.50%, change may be a long time coming.
The ASX RBA Rate Indicator shows the market is expecting a 0% chance of a rate rise at the September Reserve Board meeting, and Mozo’s Data Manager Peter Marshall made much the same forecast.
“There are still patches of weakness in the economy, household debt is at record levels and wage growth remains stubbornly stagnant. Under those conditions, it’s safe to say the RBA is not ready to move yet and probably won’t be this year. I’d say rates will be on hold at 1.50% for another 8-12 months now,” he said.
RELATED: Home loan rates review - Spring 2017
In the minutes from last month’s Reserve Board meeting, strengthening employment numbers were discussed and although wage growth remained low, it was expected to increase a little as the labour market improved.
However, high household debt remains a major economic concern, and according to Marshall, the RBA will proceed cautiously.
“With household debt at the level it is, the Reserve Bank remain in a very delicate position - they won't want to risk placing families under any more pressure,” he said.
“There’s very little chance they’ll make a move to upset the apple cart, unless something happens in the wider economy which forces their hand.”
Of course, just because the Reserve Bank is playing the waiting game doesn’t mean home loan lenders are as well. Although this month saw a number of rate cuts from some lenders, recent months have also seen a spate of rate hikes particularly for interest-only borrowers. This could spell bad news for home loan borrowers who bought into a competitive property market.
For example, on an $800,000 loan, a 0.25% rate rise from the average 4.90% could mean an extra $117 on top of a borrower's monthly payment, or an extra $35,000 in interest over the life of a 25 year loan.
The good news is there are still quite a few loans available with rates under 4%, and the market leader at the moment is Reduce Home Loans Rate Buster with a low variable rate of 3.44%. There are also a number of fixed rate loans offering great value.
Top fixed home loan rates
- 1 year - 3.49% from Greater Bank (4.47% comparison rate)
- 2 years - 3.64% from Newcastle Permanent (4.79% comparison rate)
- 3 years - 3.69% from Auswide Bank (4.32% comparison rate), Newcastle Permanent (4.69% comparison rate), SCU (4.70% comparison rate)
- 4 years - 3.99% from Greater Bank (4.48% comparison rate)
- 5 years - 3.99% from Greater Bank (4.47% comparison rate)
Don’t forget to keep an eye on our Reserve Bank page, where we’ll be reporting what happens at the September meeting and how it affects your money.