The first interest rate decision under the new governor of the Reserve Bank of Australia, Michele Bullock, has come at a time when new home loans are significantly more expensive than they were just three years ago. This decision also marks a change in the language used in the governor’s statement, emphasizing the board’s determination to achieve the desired inflation target outcome.
The general tone of the statement reflects the RBA’s belief that it has completed its rate hikes but wants to ensure that the markets and key economic decision-makers are aware that future rate hikes are still possible. Prior to the decision, the market had fully priced in another rate increase by April next year, but now there is greater uncertainty.
For homeowners and aspiring homeowners, this uncertainty brings some relief compared to the challenges of the past year and a half. The decision comes shortly after the release of the latest home-finance data, which shows a slight increase in the total value of home loans. Although this increase may seem significant at 2.2% in August, it follows a couple of months of decline, resulting in a relatively neutral impact.
Despite the total dollar value of new home loans being lower than the peak during the pandemic, it remains higher than pre-pandemic levels. This is despite the number of new home loans in August being similar to pre-pandemic levels. Consequently, the average size of new home loans has increased compared to three years ago, indicating the continued impact of the pandemic on borrowing patterns.
This trend is not limited to specific states, as all regions have been affected. The increase in home loan sizes is a significant factor in the rising loan repayments, which have also been influenced by higher interest rates. The repayment amounts on new average home loans have increased significantly, presenting challenges for borrowers.
As a result, many mortgage holders are exploring options to refinance their loans. In August, a record number of home loans were refinanced by external providers, indicating a growing trend of borrowers seeking better deals elsewhere. This aligns with the previous advice given by the former Reserve Bank governor to contact one’s bank for better loan arrangements.
Moving forward, it remains uncertain whether the new governor will oversee further rate increases or a period of stability. However, the current situation highlights the increasing difficulty of paying off a home loan. It is crucial for borrowers to proactively engage with their banks and seek better deals.