RBA holds official rate for ninth time in a row
Rates for homebuyers increasingly "out of cycle" with official rate.
Although 97% (30/31) of our resident rate experts tipped that the rate would be held at 2.0% at today’s Board meeting, the majority are predicting "out of cycle" rate changes to happen in 2016.
When asked about "out of cycle" interest rate changes this year, 39% (2/5) economists in the finder.com.au Reserve Bank survey predict an "out of cycle" interest rate change will take place while the majority of economists predict the Reserve Bank will keep the cash rate on hold, or lower it at some point in 2016.
45% (14/31) of experts believe we are at the bottom of the cycle, while one in four experts are forecasting a further rate cut by 25 basis points to 1.75%. Three economists predict the cash rate will drop as low as 1.50% this cycle.
On the other hand, 23% (7/31) believe a rate rise is due in 2016, while a further 48% agree that there will be a rise, but not until next year.
While three lenders -- Yellow Brick Road, Bankwest and Australian Unity – have upped their variable rates this month while the cash rate paused, 39% of survey participants expect lenders to follow suit and shift interest rates "out of cycle" this year, which means predicting changes will be harder..
Why hold the cash rate?
With accommodative conditions, the Reserve Bank has showcased its "wait and see" mindset by maintaining the cash rate today, following a previous hold from last month’s decision.
Although the economy is growing at a below-trend pace, low unemployment and inflation levels remain within target. Thus, the Reserve Bank decided to hold the cash rate at 2.0% for March 2016.
While global turmoil of financial markets represents a potential risk, the Reserve Bank will wait for further economic data to be released before making a call.
A low AUD and a strong labour market have contributed to the Reserve Bank’s decision to hold the cash rate for March 2016.
How can I prepare for ‘out of cycle’ rate changes?
With uncertainty in the market, it’s important that you don’t become complacent about your mortgage. You should investigate the best deals on the market and see how your lender fares. If you don’t believe your mortgage is meeting your needs, speak to your lender and ask whether they can offer you a better rate or lower fees-- use your loyalty and repayment history as leverage.
Stay abreast with market trends and keep an eye out for any information that may signal ‘out of cycle’ rate changes that may be initiated by your lender.
How to better manage your mortgage:
- Refinance. Before you refinance, make sure you’ve done some groundwork. Compare different home loan deals available on the market and if you discover that you’re no longer getting a competitive deal, or if you think you’re home loan no longer satisfies your needs, then chat to your lender and negotiate for a better rate. Use your loyalty, repayment history and loan size to up your negotiating power. However, if it’s more than a lower rate that you’re after, and you’d like to refinance to a new lender, make sure you carefully compare the costs involved.
- Extra repayments. If your home loan enables you to make additional repayments without penalty, then you should use this feature to your advantage. Making regular extra repayments can help you pay down your mortgage sooner. Use our extra repayment calculator to see how much you could save over the lifetime of your loan.
- Offset account. Use a linked offset account to minimise the interest payable on your home loan by the amount held in the account. This can also help you shrink your interest payable and your loan term.
- Split loan or fix. If you’re concerned that your lender may unexpectedly hike rates, then think about splitting your loan into variable and fixed portions or fixing your rate. This will give you peace of mind in knowing what your repayments will be from month to month.
- Disciplined saving. To protect yourself from ‘out of cycle’ rate changes, build up a buffer of savings as this could help you cope with a sudden rate increase. Take out a high-interest savings account and make regular deposits into it. Stay focused and don’t be tempted to dip into your savings.