Despite tighter serviceability and rising arrears fears, industry leaders say structure, realism and early conversations are keeping borrowers in the game
The writing was on the wall for today’s 25-basis-point interest rate hike when March household spending soared ahead of expectations to post the strongest annual gain since mid-2023.
With today’s rate rise, the Reserve Bank of Australia (RBA) has brought the cash rate back to early-2025 highs of 4.35%.
It was not a hard decision for the Monetary Policy Committee to make – eight members voted on the hike and only one member voted to hold at 4.1%. That marked a sharp U-turn from the last rate announcement in March, when the Board voted with a 5-4 split.
The narrative was a simple one to understand: Inflation is too high, and higher borrowing costs are the only solution.
Labor treasurer Jim Chalmers sought to divert the blame for surging inflation away from public spending, saying in a press conference following today’s rate call: “The Reserve Bank statement, it’s important to recognise, does not point to public spending as a factor in their decision to increase interest rates today.”
But RBA governor Michele Bullock suggested that might not be 100% the case.
“When inflation is already too high and the economy facing capacity pressures, it doesn’t take much additional spending to make the job of returning inflation to target more challenging,” Bullock said. Both the private sector and public sector had contributed to inflation, said Bullock.
Shadow treasurer Tim Wilson accused Labor of having an “active inflation agenda”, but Chalmers pointed to external factors playing out globally.
“The RBA’s Statement is clear that conflict in the Middle East is already adding to inflation. While this decision was widely expected and widely anticipated, that doesn’t make it any easier,” he said.
Regardless of catalysts, borrowing costs are set to climb even higher, with Macquarie Bank becoming the first major bank to confirm an increase in variable rates.
Bullock lamented the cash rate as a blunt tool for tempering inflation, “but it’s the only one we’ve got”. She framed higher borrowing costs as a necessary evil to improve the overall cost of living.
Broking industry reacts
“Today's rate increase was no surprise,” said Mark Haron (pictured, far left), executive director at mortgage aggregator Connective. “The RBA is still trying to rein in inflation as price pressure in housing and services remains particularly high. The resilience of the labour market is giving the RBA room to stay restrictive despite ongoing geopolitical tensions and market volatility.”
As higher repayments stretch household budgets, Haron anticipates that borrowers will be seeking guidance well beyond just rates, to loan structuring, lender comparisons and scenario modelling.
“In this environment, brokers should move early and stay close to their clients,” said Haron. “Revisit pre-approvals immediately and consider repricing or refinancing where appropriate. For clients prioritising certainty, fixed-rate options should be part of the conversation alongside trade-offs.”
Surprise or not, Anja Pannek (pictured, centre left), chief executive of the Mortgage and Finance Association of Australia (MFAA), called today’s announcement “difficult news for borrowers already managing higher repayments and broader cost-of-living pressures”.
Pannek advised reaching out to a broker for guidance sooner rather than later. “Mortgage brokers can assist borrowers to compare the market, negotiate with their current lender and consider whether their loan structure still suits their circumstances,” she said.
According to Anthony Waldron, chief executive of Mortgage Choice, borrowers are already being proactive.
“Mortgage Choice home loan submission data reveals that borrowers are already responding to climbing rates and chasing a better deal on their mortgage,” said Waldron. “Over the last two months, demand for refinance has been trending up, with refinance representing a greater share of overall submissions.”
Interestingly, borrowers are seeking out fixed-rate loans, despite Australians’ overwhelming preference for variable-rate products. In April, 6% of loans submitted by Mortgage Choice brokers included a fixed portion, up from just 3% a year ago. This follows an uptick in March when 8% of submissions had a fixed portion. “(This) shows borrowers are seeking certainty,” said Waldron.
"If the RBA's latest decision has you questioning whether your current home loan is still the right fit, I'd encourage you to chat with a mortgage broker. Understanding your options has never been more important,” Waldron added.
‘Deals are still getting done’
“In this sort of market, good brokers are already well ahead of it,” said Troy Phillips (pictured, centre right), director at FirstPoint Mortgage Brokers. “They’ve been in constant contact with clients, whether that’s regular updates or knowing exactly who needs a call before they ask for help.”
Any serious fixed-rate conversations “should’ve been done back in November through January when the writing was on the wall”, added Phillips.
While serviceability is obviously tight, “it’s not broken”, continued Phillips. “Deals are still getting done, just with a bit more structure and realism around borrowing power. Aussies always find a way to pay the mortgage.”
The broking industry now awaits the Federal Budget, scheduled for 12 May, to see what’s next in store for mortgage finance.
A dramatic overhaul of hot-button issues like the capital gains tax (CGT) discount and negative gearing are firmly on the agenda, which could heavily influence property investor appetite.
“If we don’t see anything meaningful around productivity, cost of living or sensible tax settings – and I doubt we will – that’s what could really weigh on sentiment and slow demand further,” said Phillips.
AMP chief economist Shane Oliver (pictured, far right) is also calling on the government to address productivity in the Budget, saying: “The best things the Government in the Budget can do to help alleviate underlying inflation pressures is to lower the level of public spending and introduce reforms to help boost productivity and hence capacity in the economy.”
Oliver warned of the looming threat of stagflation, saying the current environment “has some parallels with the 1970s”, when a noxious combination of high inflation and weak growth battered the Australian economy.
The RBA is right to be focussing first on getting inflation back to target “as it will avoid even more pain down the track”, said Oliver.
AMP predicts a further rate hike in August, although there are many variables at play. “the longer the Strait of Hormuz remains blocked, the greater the risk of recession in response to fuel rationing, which would ultimately depress underlying inflation allowing a return to rate cuts next year,” said Oliver.
