RBA rate hike sparks concerns about homebuyer activity and future increases

NAB, Zippy Financial, and Finsure comment on the RBA decision

RBA rate hike sparks concerns about homebuyer activity and future increases


By Mina Martin

The Reserve Bank recently decided to raise the cash rate by 25 basis points to 4.35% – a move Zippy Financial said would further decimate plummeting homebuyer and investor activity, while Finsure now expects more “inevitable” rate rises as the central bank continued its fight against inflation.

Alan Oster, NAB group chief economist, said the Reserve Bank move was in line with NAB expectations after some re-acceleration of underlying inflation in the third quarter along with a tight labour market and wage growth, and was delivered by the board as “insurance” as inflation “is proving more persistent than expected a few months ago” and “the risk of inflation remaining higher for longer has increased.”

Rate hike impact on lending activity

But Louisa Sanghera (pictured above left), Zippy Financial director and principal broker, questioned the rationale behind the decision, given the sustained decrease in inflation over the past nine months as well as the significant and prolonged fall in homebuyer and investor activity over the same period.

ABS’ Lending Indicators for September showed a 28% reduction in the number of new loans for owner occupiers since May last year, alongside a 25% decline in the number of new investor loans during the same period.

“Many of the new or existing borrowers we speak with have absolutely no chance of refinancing, with a lot of them technically not servicing their current debt levels,” Sanghera said. “Over the past two months in particular, borrowers are becoming more desperate with many homeowners turning to interest-only repayments as the only way they can continue to hold on to their homes. “

Unfortunately, she said, their current lenders may not provide interest-only options to owner-occupiers, making it challenging to refinance and potentially requiring borrowers to sell their property or request a repayment pause to maintain their housing stability.

Sanghera said the underwhelming number of new homebuyer and investor loans would eventually affect the rental market, leading to increased rents, as it urged all levels of government to exercise fiscal restraint rather than placing the burden of inflation on everyday borrowers.

“Fiscal restraint can help fight inflation rather than just increasing interest rates in a record short timeframe,” she said.

“If policymakers are serious about helping to alleviate the rental crisis, then they need to allow more lenders to offer rollover interest-only loans to existing investor borrowers so they can continue to provide rental housing to tenants around the nation,” she said. “Without it, more investment properties will be sold off at a time when new investor activity is also well below par.”

More rate hikes “inevitable”

But the worst is not yet over for mortgage holders, as Finsure Group CEO Simon Bednar (pictured above right) is expecting two more rate hikes by February, with any hopes of a cut on the back burner.

“I think another rate increase by RBA was inevitable given the rising inflation and continued pressure on rents, fuel prices, and electricity,” Bednar said. “I don't think RBA had any choice but to go up 25 basis points now and see if there is any impact before Christmas.

“A big question was not just whether they decided to lift rates on Melbourne Cup Day, but if they go again in December, or wait until February to give families a break over the summer holidays.

“But it’s uncertain whether they can wait until February given inflation has bucked up. This is despite the RBA’s original optimism, after hiking rates 400 basis points since May last year, that the next movement could be a decrease.”

NAB, meanwhile, is expecting just one more increase to 4.6%, most likely in February, remaining elevated for most of next year before it is gradually brought down.

“We now see the cash rate as likely to remain on hold (at the revised peak of 4.6%) until November 2024,” Oster said. “From there, we see a gradual profile of normalisation, and pencil in 25bp rate cuts per quarter back to 3.1% by early 2026.”

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