Warning to Borrowers: Don’t Rely on 2024 Rates Relief
The upcoming June increase is set to be the second-largest hike to HECS debt in over ten years.
Australian homeowners should not expect any relief from interest rates following the release of unexpectedly strong quarterly inflation figures.
The consumer price index for the March quarter revealed ongoing price pressures, particularly in services such as education, health, rents, and insurance, reducing the likelihood of interest rate cuts in the near future.
A decrease or absence of cuts in 2024 will delay significant repayment relief on home loans for many borrowers, as per calculations by financial comparison site RateCity.
Quarterly inflation accelerated from 0.6 percent in the last three months of December to a one percent rise by March, exceeding the 0.8 percent forecast consensus.
Yearly inflation decreased to 3.6 percent in March from 4.1 percent, slightly higher than the forecasted 3.5 percent.
The higher-than-expected inflation figures have led Westpac to revise its interest rate cut prediction from September to November, aligning with ANZ and NAB’s forecasts.
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Commonwealth Bank is currently sticking with September, but indicates that there is a higher likelihood of a November adjustment.
Various forecasters are anticipating rate cuts to commence in the next year, with differing opinions on the number of cuts to be expected—factors that will significantly impact borrowers, according to RateCity research director Sally Tindall.
An average mortgage holder with a $500,000 debt would have observed a reduction of $226 in monthly payments by the end of the year if the Reserve Bank opted for three rate cuts in 2024.
However, if only one 0.25 percentage point cut is implemented, the same homeowner would experience a smaller $76 decrease in monthly payments by the year’s end.
Tindall emphasizes that the higher-than-expected inflation data is a reminder not to rely on anticipated rate cuts for budgeting purposes.
She advises borrowers counting on multiple RBA rate cuts this year to prioritize ensuring they can meet their current mortgage repayments for the remainder of 2024.
The inflation report further highlights the challenging economic environment that the Albanese government is facing as they finalize their third federal budget.
With persistent price pressures and subdued growth, Deloitte Access Economics partner Stephen Smith notes that Treasurer Jim Chalmers will face a delicate balancing act.
Smith stresses the importance for the government to pivot towards growth to avoid stagnation in investment and productivity, which could undermine Australia’s long-term prosperity.
According to EY chief economist Cherelle Murphy, the extended wait for interest rate cuts will limit the government’s flexibility in implementing additional discretionary public spending.
