RBA Survey: Half of experts say Big Four will raise rates out of cycle, cash rate holds
With the property market showing no signs of slowing down, experts are split on what measures will be taken to dampen price growth, according to a new poll from Finder.
In this month's Finder RBA Cash Rate Survey™, 39 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy.
While all panellists correctly predicted a cash rate hold in October, half of the economists who weighed in* (50%, 14/28) think it is likely that the Big Four banks will lift their standard lending rates out of cycle within the next 12 months.
Graham Cooke, head of consumer research at Finder, said a stagnant cash rate didn't mean home loans wouldn't get more expensive.
"Data from the RBA shows that banks changed their rates 7 times during the last stable period. 4 of those changes were rate increases – and they may well do it again.
"Those who aren't on a fixed mortgage rate should stay alert to any changes from their bank, as it could mean substantially higher monthly repayments," Cooke said.
Finder analysis found Australian first home buyers are borrowing $53,676 more mortgage debt than they did last year, putting even more pressure on home owners if rates were to rise.
Just over half of experts (55%, 17/31) expect the Australian Prudential Regulation Authority (APRA) to implement lending restrictions to dampen property price growth.
"APRA recently confirmed that they were looking closely at income-to-price ratios. This could be an early indication that lending restrictions are coming," Cooke said.
One-third of experts think refinance boom may hurt lenders
Nearly 1 in 3 experts (30%, 9/30) see constant refinancing from mortgage holders becoming an issue for lenders in the near future.
According to the latest ABS figures, total refinancing reached another record high at $17.9 billion in value in July 2021. This is an increase of 47% year-on-year.
The total number of refinancing loans in July 2021 was 38,473.
"While home owners are eager to make the most of record low interest rates, lenders are aggressively competing for market share with cashback offers up to $4,000," Cooke said.
"With many refinance offers getting you a better rate and thousands in cash, it's no wonder Aussies are home loan shopping."
Finder analysis shows an average refinancer could save up to $3,288 a year by switching to a lower rate loan.
|Potential refinance savings for the average borrower|
|Original loan amount||$500,000|
|New loan amount||$457,995|
|Original loan term||30 years|
|New loan term||26 years|
|Original interest rate||3.30%|
|New interest rate||2.14%|
|Original monthly repayment||$2,189|
|New monthly repayment||$1,915|
43% say LMI is good value
Interestingly, 43% (10/23) of experts believe lenders mortgage insurance (LMI) is good value for buyers looking to get onto the property ladder sooner.
Cooke said the well-known maxim to avoid LMI at all costs doesn't hold as much water when property prices are increasing so quickly.
"There's no doubt that avoiding paying an LMI premium will save you money, but consider what that 'saving' might cost you.
"LMI can add thousands of dollars to your home-buying costs, but it's still worthwhile in certain circumstances.
"If you wait an extra year to buy a property and its value increases by the amount of LMI, it may be better to bite the bullet and pay the fee.
"You can use Finder's free LMI calculator to estimate your lenders mortgage insurance premiums."
|Property value||Deposit ($)||Deposit (%)||Estimated LMI cost*|
|*These costs are estimates only, taken from Finder's LMI premium estimate calculator. These numbers do not reflect genuine LMI quotes from an insurer.|
*Experts are not required to answer every question in the survey
Here's what our experts had to say:
Nicholas Frappell, ABC Bullion: "Central banks are slowly pivoting towards a tighter environment, and that price pressures in the domestic economy post-reopening may justify an earlier hike."
Shane Oliver, AMP Capital: "The RBA's stated conditions for a rate hike, i.e. actual inflation sustainably in the 2% to 3% target zone, are far from being met. This will require sustained unemployment of around 4% and wage growth of 3% or more and that's a fair way off."
David Robertson, Bendigo Bank: "The timing of the first RBA interest rate rise is still most likely to be mid-2023 as our economy recovers and tighter labour markets drive wages growth, but other competing forces are ever-present. Trade and geopolitical developments continue to complicate the outlook."
Sean Langcake, BIS Oxford Economics: "The lockdowns through 2021 will delay progress toward faster wage growth and the first rate rise."
Peter J Tulip, CIS: "Inflation will remain below the RBA's target till 2024."
Peter Boehm, CLSA Premium: "The RBA's hands are tied – it cannot move interest rates given the state of the economy and the ongoing uncertainties surrounding most Labor premiers' positions on opening up their state borders. Only sensible policies around opening up the Australian economy and Federal Government fiscal stimuli can have positive impacts on the direction of the Australian economy. Changing the cash rate (even down) is, for now, a somewhat useless tool in helping to support the Australian economy."
Saul Eslake, Corinna Economic Advisor: "As before, I take the RBA at its word when it says it won't increase the cash rate until underlying inflation is sustainably within the 2-3% target range, and that that won't occur until the labour market is sufficiently tight to have pushed annual wage inflation above 3%. Dr Lowe 'doubled down' on that in a speech earlier this month. I think its criteria may well be met before 2024, but I don't think they'll be met before 2023."
Nicholas Gruen, DYSCALL: "I'm guessing that demand will be stronger than people expect because of balance sheet effects after opening up – that together with supply constraints owing to COVID disruption as in other countries."
Craig Emerson, Emerson Economics: "RBA statements [say] that it does not envisage increasing the cash rate before 2024."
Mark Brimble, Griffith University: "The global economy is still being fed significant stimulus and the RBA will want to see inflation return towards the target range sustainably prior to moving the rate."
Tim Nelson, Griffith University: "As COVID impacts start to become more muted, the economy will pick up but will take time. Monetary policy is likely to adjust in 2022."
Tony Makin, Griffith University: "If US and Australian inflation numbers continue to exceed expectations, both the Fed and RBA will be forced to wind back their QE programs and raise official rates. Given the COVID lockdowns here are having a bigger macroeconomic impact here than abroad, the RBA may however be slower to act."
Tim Reardon, Housing Industry Association: "Sustained inflation and wage growth won't be where the RBA wants them to be before 2023."
Michael Witts, ING Bank: "Recent RBA guidance suggests that the Bank is unlikely to move rates until well into 2023 or later."
Mathew Tiller, LJ Hooker: "Despite property market performance remaining strong, the RBA continues to publicly maintain that it intends to hold rates steady for the next few years."
Geoffrey Harold Kingston, Macquarie University: "Recovery has been delayed by the current wave of the virus."
Jeffrey Sheen, Macquarie University: "Though there remain significant sources of uncertainty, I expect the domestic and global economy to have normalised enough in 2023 to justify a gradual increase in the cash rate."
Michael Yardney, Metropole Property Strategists: "Governor Phillip Lowe has made it clear – he virtually said 'read my lips' – rates aren't rising any time soon."
Mark Crosby, Monash University: "Well signalled by the RBA for rates not to rise before 2023. However, rising inflation will likely see them move sooner than markets currently anticipate."
Julia Newbould, Money magazine: "I can't see that there is any reason why the RBA would not hold rates for the near future."
Susan Mitchell, Mortgage Choice: "The Reserve Bank remains steadfast in its commitment to achieving its inflation target and a return to full employment before raising the nation's cash rate. The low cost of borrowing is fuelling strong activity in the nation's housing market, with ABS data revealing a surge in residential property prices of 6.7% in the June quarter."
Dr Andrew Wilson, My Housing Market: "Clearly no case for higher rates in the foreseeable future given current fragile economic circumstances."
Alan Oster, NAB: "Inflation and wages will not hit targets till early 2024."
Malcolm Wood, Ord Minnett: "It will take some time for inflation to be sustainably within the 2-3% target band."
Rich Harvey, Propertybuyer: "RBA consistently said rates will not rise until 2023."
Matthew Peter, QIC: "The RBA is constrained to year end. It can't take a more hawkish stance until the impact of reopenings of state economies is known. The RBA will wait until after its summer break to decide its next move."
Noel Whittaker, QUT: "I think by then most people will be vaccinated, lockdowns will be no more – and business will be getting back to normal."
Cameron Kusher, REA Group: "The RBA have been steadfast that they won't move rates until inflation is comfortably within band, I've seen nothing over the past month that changes my view that will happen before 2023."
Christine Williams, Smarter Property Investing: "As we come out of COVID – and with the savings that are happening, the RBA will have ample reason to increase rates."
Mala Raghavan, University of Tasmania: "The cash rate will only rise, provided Australia's key macroeconomic indicators are on a stable trajectory path. As long as COVID uncertainty is hanging over the economy, it is hard to predict when we will reach that comfortable spot."
Jonathan Chancellor, Urban.com.au: "The first move by the RBA will likely be to nudge the regulator into macro-prudential measures."
Dale Gillham, Wealth Within: "Whilst economic growth was down in 2nd quarter 2021, GDP is up 9.6% for the year. Given lockdowns around Australia are likely to ease if not end completely by the end of 2021 or into early 2022, I expect the economy will bounce back quite well."
Brodie Haupt, WLTH: "With continued lockdowns and rising pressure on the economy, I don't think there will be a change to the cash rate until 2023."
Jakob B. Madsen: "The interest rate is deemed to go up at the world level because of the ageing world population."
Other respondents: Angela Jackson, Equity Economics. Alex Joiner, IFM Investors. Ben Udy, Capital Economics. Leanne Pilkington, Laing + Simmons. Bill Evans, Westpac.