The Reserve Bank of Australia’s latest decision to keep interest rates on hold will leave struggling homeowners in a precarious position and start a chain reaction within the housing market, experts claim.
RBA governor Michelle Bullock announced the cash rate would remain on hold on Tuesday at 4.35 per cent, squashing hope of an early reprieve for homeowners.
The result was widely in line with bank and economist expectations, with much of the market now forecasting the RBA to deliver a rate cut by about May next year.
Experts warned this would be too late for many struggling homeowners and many were expected to take steps to pull themselves from the financial brink.
Research released this week showed an increasingly pessimistic outlook about the direction of interest rates has spurred a mass drive from homeowners to either sell up or get out of crushing loan deals with their existing lenders.
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![CEDA DINNER Michelle Bullock Speech](data:image/svg+xml,%3Csvg xmlns="http://www.w3.org/2000/svg" viewBox="0 0 1280 720"%3E%3C/svg%3E)
RBA governor Michele Bullock is expected to announce another hold in the cash rate. Picture: Monique Harmer
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The former could provide a boost to property sales at a time when buyer demand has been moderating – putting further downward pressure on prices in some markets.
About half of Aussie mortgage holders polled in recent research by comparison site Finder.com.au revealed they were struggling to meet the repayments on their homes. This was up from 35 per cent in October 2023, and 31 per cent in October 2022.
Mortgage defaults were also predicted to increase ahead of Christmas, with additional data from SQM Research noting a recent rise in distressed sales – particularly in Victoria.
Finder research revealed homeowners were responding with desperate moves to break from their existing loans.
More than one in five Aussie mortgage holders (21 per cent) said they were preparing to ditch their lender in search of a better deal by the end of the year. Such switches usually incur steep lender exit fees.
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Auction clearance rates were at their weakest in nearly a year last weekend. Picture: Sam Ruttyn
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Finder estimated this would translate to 693,000 homeowners hoping to switch home loan lenders in late 2024 for a cheaper interest rate.
A further quarter of homeowners revealed they planned to ask for a better deal with their existing lender.
It follows a dramatic increase in property listings, with many states recording their highest volume of September and October listings in more than 15 years. Part of that bounce has come from investors offloading rentals they can no longer afford.
Finder home loans expert Finder Richard Whitten said Aussies had overstretched themselves and were looking for reprieve.
“Interest rates are hitting households hard and many are looking for a way to reduce the pressure,” he said.
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Inflation in some sectors of the economy has remained stubbornly high.
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“Interest rates have remained fairly steady since November but many haven’t adjusted to the higher repayments.”
GSC Finance Solutions’ Matt Turner said it looked like a cash rate cut was still far away, adding that he expected the Reserve Bank to keep rates on hold at its latest meeting and for many more months.
“Based on the latest CPI data it is clear that we are still some way from being back to a comfortable level of inflation for the RBA,” Mr Turner said.
“There are still many macroeconomic headwinds at play as well with the ongoing unrest in the Middle East and Ukraine along with the new tariffs to be introduced in the US.
“These have potential to be inflationary so the RBA will have no choice but to tread carefully.”
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Finder’s Richard Whitten.
Metropole Property Strategists director Michael Yardney said delays in rate cuts remained the most likely outlook.
“The latest inflation data continues to support no change to official rates in December, but gives more ammunition for the RBA to be cutting rates by May with the worst of the cost-of-living shock behind us.
Mr Yardney said that while headline inflation had decreased to 2.1 per cent, well within the RBA’s target range, core inflation remained elevated at 3.5 per cent, exceeding the RBA’s desired 2–3 per cent band.
“The RBA will require more than one favourable quarterly CPI result to initiate rate reductions, making a cut before May 2025 unlikely,” he said.
“Additionally, Australia’s strong labour market, with persistent low unemployment rates must worry the RBA as this contributes to wage growth and consumer spending, which can sustain inflationary pressures.”
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The Reserve Bank is widely expected to cut rates around May. Picture: NCA Newswire
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The Finder research showed millennial borrowers were most likely to be searching for a better home loan deal.
Almost one in three Gen Y homeowners (30 per cent) said they are planning to switch lenders in the last weeks of 2024.
“Interest rates have clobbered savings accounts as ordinary households run down their savings to fund the basics,” Mr Whitten said.
“Despite efforts to reduce expenses – households need to reduce what they’re paying on their mortgage.
“A cheaper interest rate would translate to a bit more breathing room for borrowers and a bit more spending money for Christmas.”
