Rate hikes and reality checks: What should borrowers do now?

5 days ago 3

With a rate cut unlikely in the near term and property prices soaring to even newer heights, buyers are advised to take stock.

The Reserve Bank of Australia (RBA) held the cash rate steady at 3.60% for the second consecutive month in November, with governor Michele Bullock pointing to persistent "excess demand" in the economy. Nowhere is this more evident than in the property market.

National home prices rose 0.5% in November, pushing annual growth to 8.7% — the fastest pace since May 2024.

"Demand is definitely picking up, while rental vacancy rates remain at record lows. Until we fix the supply issue, prices will likely keep climbing," Sydney-based Mortgage Choice broker Terrence Hammond warns.

Forecasts for next week’s final cash rate decision of the year have been souring for weeks following hotter-than-expected inflation figures for the September quarter, with the Consumer Price Index jumping 1.3% quarterly to 3.2% annually.

Inflation is well and truly outside of the RBA’s 2-3% target range, where it’s now forecast to stay until mid-2026.

Appearing in front of the Senate Economics Legislation Committee in Canberra earlier this week, Ms Bullock admitted the RBA’s control was slipping.

Governor Michele Bullock admits the RBA is not keeping inflation inside its target range as it should. Picture: Getty

“That is the whole purpose of the board: to try and bring [inflation] back sustainably. Have we done it yet? No, we haven’t done it yet,” she acknowledged. “We need to keep working on this."

Markets were pricing in a 94% chance of a cash rate hold as of 4 December, while arguments for a rate hike have also entered the conversation.

Banks have already begun winding in their expectations, with fixed rate offers locking and rising. All major banks now agree borrowers won’t see any interest rate cuts until next year.

"Higher-than-expected inflation has pushed out when, or even if, the RBA is going to cut rates again," REA Group executive manager of economics Angus Moore says.

REA Group executive manager of economics Angus Moore says says inflation is the bank's biggest focus. Picture: supplied

"Currently, market pricing still has a good chance of a cut by mid next year, but it's all going to come down to inflation, which is the RBA's biggest focus at the moment."

The RBA will also be keeping a close eye on the rising unemployment rate, which hit 4.5% in September. If this trend continues upward, it could justify a future rate cut.

However, Mr Moore cautioned that unemployment figures can be "volatile month to month".

"The current level remains low relative to what's been typical over the past five decades," he adds. "Given the RBA is so focused on inflation, we'd need to see a larger deterioration in the unemployment rate for the RBA to shift their focus."

FOMO pushing the property market

The federal government’s Home Guarantee Scheme, which was expanded on 1 October to allow more first home buyers to purchase with just a 5% deposit, is already shaking up the market, Mr Hammond confirms.

"I've seen a big uptick in demand in the last two months; it’s fiercely competitive out there. Buyers who previously didn’t qualify jumped in early in anticipation of price rises, and those who did rushed to buy before prices climbed even higher.”

With the scheme now fully expanded, he warns conditions will only intensify.

"More buyers means more competition, which will keep pushing house prices up."

Investors are also getting caught up in the FOMO, he added.

"My investor clients want to buy before even more buyers enter the market."

Despite this, he warned against chasing quick profits.

"If you can afford it, there’s never a bad time to buy property. The key is being able to hold it long term, because that’s where the real gains come."

Borrowers hoping to move, sell or refinance are also fighting off even more competition with the long-awaited Help to Buy scheme now also in play.

Competition among sellers and buyers is heating up rapidly as inflation heats back up. Picture: Getty

Low-income families will be able to enter into shared equity arrangements with the federal government from 5 December. Just a 2% deposit will be required to secure a home – though price caps apply – while buyers will also be exempt from paying Lenders’ Mortgage Insurance.

Negotiate with lenders

Even without another RBA rate cut next week, there’s still room to negotiate with your lender.

With strong home-buying and refinancing activity, lenders are still competing hard, Mr Hammond says.

"There are some really cracking prices around as banks vie to win and keep clients. If you haven’t reviewed your rate recently, now’s a great time to check in with your lender to see if you can negotiate a better price — or ask a broker to do that for you."

He also recommends shopping around.

"Brokers can tell you what rates are available out there in the market, and may even be able to secure you better rates than what banks openly advertise."

Homeowners benefiting from higher property values and increased equity may qualify for better rates, he added.

"As house prices rise, your loan-to-value ratio drops, making you less risky to banks, which means they may be able to offer you better rates."