Westpac forecasts higher interests rates: Borrowers warned to brace for higher repayments
Monthly repayments could soon cost borrowers a lot more cash if Westpac’s predictions for rate rises do come to fruit...
Expectations are rising for a cash rate cut this month, just weeks out from a federal election. How soon could the banks pass on these cuts to your mortgage?
According to comparison website Finder’s panel of 40 experts, 25 per cent expect the cash rate to be cut during May’s announcement on Tuesday to a new historical low to an expected 1.25 per cent, which would make it the 30th meeting since the last rate cut in August 2016.
In addition, 84 per cent expect the rate to be cut by August 2019.
Graham Cooke, insights manager at Finder said the potential cut was due to the recent CPI figures and the current property market softening.
“The latest 0 per cent inflation results may have far-reaching implications for our economy,” Mr Cooke said.
“While the results came as a bit of a surprise to our panel, flat inflation will be a huge worry for the RBA, who are aiming to keep inflation between 2 per cent and 3 per cent.
Nearly three-quarters of the panel at 73 per cent also expect the cash rate to drop to at least 1 per cent by the end of the year.
Meanwhile, 8 per cent of the experts believe the next rate movement could be a rise instead.
“We’ve gone from nearly 90 per cent of experts predicting an eventual rise in 2018 diminish to just a tenth of that now. This is a dramatic shift,” Mr Cooke said.
If investors are looking for a new loan, or new investors are looking to enter the market, Mr Cooke said a cut could be good news.
“There’s a whole generation of Aussie home owners who are yet to experience a rate cut – or any movement to the cash rate for that matter. This could mean confusion over what actions to take following a change,” he said.
“If we don’t get a cut on Tuesday, it’s incredibly likely we will see one within the next three months. If the banks follow suit, this could be great news for borrowers because it means the cost of borrowing will become cheaper.
“That said, you don’t have to wait for a rate cut or for your lender to pass on the savings to ensure you’re getting a better deal on your home loan. Right now is the perfect time to go home loan shopping – look for a rate with a ‘3’ in front of it.”
Existing loan holders with variable rates could see rates drop to as low as 3.19 per cent, data from RateCity indicates.
Sally Tindall, RateCity research director, said that while she believes the RBA is not ready to move, pressure is on the banks to pass on any rate cuts in full.
“Banks have been hiking rates since 2017 due to the high cost of funding, but this pressure has dissipated, so the next RBA cut should, in theory, be passed on in full,” she said.
“That said, it’s been a tough year for the banks in a slowing home loan market, so some lenders may choose to hold part of the cut back.”