The Reserve Bank of Australia has hiked the cash rate multiple times since May 2022, resulting in home loan rates rising across the country. Millions of Australian homeowners are likely asking themselves: when will interest rates fall again?
If you’re looking for the light at the end of the home loan rate hike tunnel, don’t fear. Based on the predictions of the big four banks, we may see interest rates fall again in late 2024.
Big four bank predictions: when the cash rate will fall again
According to the latest forecasting models from the big four banks, the cash rate may move as follows.
Big four bank’s cash rate forecasts
- CBA: Next cut September 2024, cash rate falling to 2.85% by May 2025
- Westpac: Next cut in September 2024, cash rate falling to 2.85% by December 2025
- NAB: Next cut by November 2024, cash rate falling to 3.10% by February 2026
- ANZ: Next cut by December 2024, cash rate falling to 3.60% by June 2025
All of the four big banks have tipped that the next Reserve Bank of Australia meeting on monetary policy will see another hike to the cash rate. This is expected to be the peak of this cycle of tightening, bringing the cash rate up to 4.35%.
In good news for homeowners, the big four banks have forecast that three to five cash rate cuts may occur between 2024-2025.
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Why did rates increase so high so quickly?
The latest cash rate hikes have mostly come as a result of higher inflation, amongst other macroeconomic factors. Even though the latest monthly CPI data for July came in lower than expected, it is unlikely that interest rate cuts will happen until inflation is reined in to the RBA’s ideal level of 2-3%.
However, if inflation can continue to ease, the RBA may be compelled to pause hiking the cash rate sooner rather than later. This will offer homeowners some much-needed relief in their budget, particularly as it takes at least 20-30 days post-notification letter from your bank to hike your interest rate.
That being said, it’s important to keep in mind there is no set rule to when the RBA is likely to cut the cash rate again. Conditions could change in a way that favours a lower rate environment sooner, or much later, than predicted. Without a crystal ball it is hard to pinpoint an exact date, so it may be worthwhile keeping up to date with the latest financial news in the meantime.
What global rate movements can tell us
It’s not just Australia’s central bank that has been hiking its benchmark interest rate for some time. Global economic leaders like the UK, the US, the EU, Canada and more, have all experienced increases to their rates as led by their central banks.
As many of these leaders began hiking rates before Australia, we may be able to look at their behaviour as an indication of how the RBA may move.
Most recently, the Bank of England kept its benchmark rate on hold at 5.25% following indications that inflation is falling and that economic growth in the UK is easing. Further, the US Federal Reserve also kept its benchmark rate on hold. While the European Central Bank (ECB) did increase rates this month, it has indicated that it is now likely to pause.
Following the latest pause from the Bank of England, Capital Economists stated that: “we think the bank will keep rates at their peak until late in 2024”
“In contrast, we think the Fed will cut rates in the first half of 2024, the ECB will cut rates earlier in the second half of 2024, and market pricing is for Bank of England cuts in August 2024,” Capital Economists said.
In Australia, inflation has been slowly decreasing after hitting its peak at the end of 2022. If this trend continues, we'll likely continue to see the cash rate kept on hold. This would reaffirm the prediction that the cash rate has peaked, and that rate cuts may only be months away.
Give yourself a rate cut while you wait for rates to drop
Don’t wait around for the economy or the RBA to shift in your favour. These are some of the ways that homeowners may be able to give themselves a rate cut in 2023.
Keep in mind that not every option will be applicable to your specific financial situation and budget. Interest rates are now much higher than when many home buyers signed up for their mortgage, and property prices have decreased in some areas. This means that if you’ve only owned your home for a short period, you may not have built up enough equity to service a new, refinanced home loan.
Make extra repayments
One of the easiest ways to chip away at your principal and potentially reduce the interest charged on your home loan is to make extra repayments – if your budget will allow.
Not every home loan will let you make additional repayments without charge, so check the product disclosure statement (PDS) before proceeding. Even smaller extra repayments of $50 a week could go a long way over time in reducing your home loan repayments.
If your home loan comes with one or more offset accounts, it may be worth utilising this home loan feature. Any funds that you deposit into your offset account can work to reduce, or ‘offset’ the amount of interest the lender charges. For example, a $600,000 home loan with $50,000 in its offset account will see interest charged on an updated balance of only $550,000.
If you’re seriously struggling to meet your monthly repayments due to higher interest rates, and you’ve been repaying your home loan for some time and/or have built up considerable equity, it may be worth considering refinancing.
Switching to a lower rate home loan may offer your budget some much-needed breathing room in a time of rising rates. Further, many lenders offer new customers their most competitive interest rates to encourage them to sign up, so you may find that you qualify for a bargain.
Switch to a lower rate, but maintain higher repayments
This strategy may involve making extra repayments, but it is done so as to not impact your household budget. You will need to call up your lender and ask for a rate cut, or consider refinancing to a lower rate home loan.
Once you’re on the new, lower-rate mortgage, continue to make the same higher repayments you were making on your old loan. Not only will you help to reduce your loan amount owing, but you won’t need to source extra funds from your budget to do so.