RBA gives homeowners a break

But brokers still helping clients to adjust to interest rates

RBA gives homeowners a break

The official cash rate remains unchanged, giving homeowners a further reprieve from higher interest rates.

Releasing its decision on Tuesday afternoon, the Reserve Bank of Australia confirmed that the OCR would stay at 4.10%, while the interest rate on exchange settlement balances remained at 4%.

It marks the third pause this year and follows 4 percentage points of rate rises over 15 months, in what economists have referred to as the most aggressive rate change cycle in 30 years.

In the August Monetary Policy Decision statement, RBA governor Philip Lowe acknowledged that inflation in Australia was declining, ABS June quarter figures showing a decline to 6%, but added that inflation remained “too high”.

“The higher interest rates are working to establish a more sustainable balance between supply and demand in the economy and will continue to do so,” Lowe said.

“In light of this and the uncertainty surrounding the economic outlook, the Board again decided to hold interest rates steady this month.”

Lowe said that Australia was experiencing a period of “below trend growth” which the RBA expects to continue.  Household consumption and dwelling investment is “weak”, he said.

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon the data and the evolving assessment of risks,” Lowe said.

ING head of sales and third party distribution Glenn Gibson (pictured above left) said that as inflation was starting to cool, there was a general consensus that interest rates may be near the peak.

However, the RBA’s 2% to 3% inflation target still represents a “significant gap”, which Gibson acknowledged created uncertainty for everyone.

“Now is the time for brokers to check in with clients to see how they’re feeling, if they have any questions about the current rate environment and whether they need any further support,” Gibson said.

BOQ Group general manager broker, credit cards and loyalty Johnny Lockwood (pictured above second left) said that recent rate rises, and cost of living pressures had resulted in elevated demand for refinancing, putting increased pressure on customers and lenders.

“While some customers have savings buffers, others are facing greater affordability challenges especially if rates continue to rise,” Lockwood said.

AFG head of sales and distribution Chris Slater (pictured above second right), said that following the release of the June quarter inflation figures, he had been leaning towards a pause.

The Reserve Bank is alive to the challenge of reducing inflationary pressures without stalling the economy, he said.

While the wholesale interest rate remains unchanged, there is no doubt that brokers and their clients are feeling the effects of the previous 13 rate hikes, he said.

“There’s a genuine feeling their previous rate increases are having an impact,” Slater said. “Our brokers are telling us that the number of customers who could refinance to a better rate but are unable to due to serviceability rules, is increasing.”

Mortgage Choice CEO Anthony Waldron (pictured above far right) said that that while borrowers would be pleased to see the RBA hold the cash rate steady for a second consecutive month, a stable cash rate in July did not rule out the possibility that lenders may raise rates on some fixed and variable rate home loan products.

Loan submission data for the brokerage showed that variable rate home loans were still more popular than fixed rate products, which Waldron said was likely due to recent rises in pricing for fixed rate home loans.

“The data shows that over July, only 9% of home loans had a fixed component. The same data shows that borrowers are seeking better deals on their home loans, with the proportion of borrowers looking to refinance climbing to 52% during July,” Waldron said.

Brokers advised to remain proactive with clients

Although the RBA’s pause in August pause means lenders won’t pass on the increase to floating rates, a large portion of borrowers are still rolling off fixed rate mortgages.

Gibson said that ING was proactively working with customers ahead of their fixed rate expiry date to ensure they were aware of what a rate increase meant for them, and the options available.

“They know that we want to help and the earlier they raise any difficulties or concerns the better placed we’ll be to help them,” Gibson said. 

He suggests that brokers remain proactive by regularly checking in with their clients to see how they’re coping, letting them know that there’s no shame in asking for help. This includes making clients aware of the available options, for example, clients may be eligible to move to a fixed rate loan for more certainty, move to an interest-only loan, or extend their loan term.

“Help the customer to understand that both the broker and lender know that no one intentionally puts themselves into financial stress and that we are all here to help,” Gibson said.

Lockwood said that BOQ Group had also been proactively engaging with customers on fixed rates approaching their maturity date, offering tips and tools to support them.

Slater said that AFG was “extremely proud” of the care, compassion and genuine hours of work that brokers were putting in to help their clients.

“Our advice is please keep doing what you’ve been doing but reach out to our team across the country if you need a hand or any support,” Slater said.