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RBA on hold + have you pocketed a rate cut of more than 0.63% points?
The Reserve Bank has again left the cash rate at 4.10 per cent, announcing today a pause for the fourth meeting in a row.
This pause, although expected, comes after a month of accelerated inflation and low unemployment figures, leaving the possibility of a pre-Christmas rate hike open.
In her first statement as Governor of the Board, Michelle Bullock noted further tightening of monetary policy may be required, as “returning inflation to target within a reasonable timeframe remains the Board’s priority”.
What should borrowers do to prepare for another rate hike?
Borrowers should prepare for one more rate hike before Christmas by getting a rate cut either from their current bank, or by switching lenders.
The average outstanding owner-occupier rate before the start of the hikes was 2.86 per cent, and after 4 percentage points of cash rate rises, should now be 6.86 per cent.
However, RBA data shows it is currently just 6.23 per cent, that’s 0.63 percentage points lower than it should be. This means the average owner-occupier has pocketed a rate reduction by either haggling or refinancing their loan. This includes new loans and borrowers who came off ultra-low fixed rates on to variable ones.
Investors have been even more successful at renegotiating, with an average reduction of 0.67 percentage points.
Average rates existing customers: RBA
| Apr-22 | Today | Difference % pts | |
| Cash rate | 0.10% | 4.10% | +4.00 |
| Owner-occupier variable rate | 2.86% | 6.23% | +3.37 |
| Investor variable rate | 3.21% | 6.54% | +3.33 |
Source: RBA. Note: today’s rates are the average of all outstanding loans for each borrower type as of 31 July 2023.
Increase to average rates: May 22 to today
Source: RateCity.com.au
How much can a 0.63 percentage point rate cut save borrowers?
If the average borrower with a $500,000 debt and 25 years remaining, dropped from a rate of 6.86 per cent to 6.23 per cent they would see their monthly repayments reduce by $197 and could save up to $6,291 over the next two years.
However, borrowers can do better than this.
According to the RateCity.com.au database, there are still two lenders offering variable rates under 5.50 per cent, while 32 lenders are offering variable rates under 5.75 per cent (excludes introductory rates).
If someone with a $500,000 debt switched to one of the lowest variable rates in the market they could potentially save $12,415 in the next two years, even after paying an estimated $1,150 in switch costs.
How much could you save by renegotiating your loan when compared to ‘do nothing’
Based on $500,000 debt with 25 years remaining - contact us for other loan sizes
| Rate | Drop in monthly repayments | Savings - next two years | |
| Do nothing | 6.86% | ||
| Haggle to big 4 new customer rate | 6.23% | $197 | $6,291 |
| Refinance to a competitive rate | 5.75% | $344 | $9,926 |
| Refinance to one of the lowest rates | 5.50% | $419 | $12,415 |
Source: RateCity.com.au. Note: based on an owner-occupier paying principal and interest with $500,000 debt and 25 years remaining on their loan. Savings over 2 years includes switch costs for the two refinancing options but not for the person haggling. Assumes rates move in line with ANZ’s cash rate forecast.
Lowest ongoing variable rates on the RateCity.com.au database
| Lender | Advertised variable rate |
| Abal Bank | 5.45% |
| First Option Bank | 5.49% |
| Pacific Mortgage Group | 5.54% |
| RACQ | 5.59% |
| Challenger Bank | 5.64% |
Source: RateCity.com.au Note: LVR Requirements apply. Excludes introductory rates.
How Australia’s cash rate compares to other countries
Australia’s cash rate, at 4.10 per cent, is still well below that of many countries also fighting inflation such as the United States, the United Kingdom, New Zealand and others.
However, Australian households are much more sensitive to cash rate changes than mortgage borrowers in many other countries such as the UK and US, who are predominantly on longer term fixed rates.
Cash rates of the world
| Official rate – start of 2022 | Official rate – today | Last meeting | Current annual inflation rate | |
| Australia | 0.10% | 4.10% | HOLD: 3 Oct | 5.2% |
| United States | 0.00% - 0.25% | 5.25% - 5.50% | HOLD: 20 Sep | 3.7% |
| European Union | 0.00% | 4.50% | +0.25: 20 Sept | 5.2% |
| United Kingdom | 0.25% | 5.25% | HOLD: 21 Sept | 6.7% |
| Canada | 0.25% | 5.00% | HOLD: 6 Sept | 4.0% |
| New Zealand | 0.75% | 5.50% | HOLD: 16 Aug | 6.0% |
| Japan | -0.10% | -0.10% | HOLD: 22 Sept | 3.2% |
Source: RateCity.com.au. Note: European Union notes the Main refinancing operations (fixed rate). *Harmonised index of consumer prices (HICP). The UK figure is CPI rather than CPIH.
RateCity.com.au research director Sally Tindall, said: “The RBA might be on pause for the fourth consecutive month, but that doesn’t mean families will be shifting into cruise control.”
“The cash rate might be on hold, but major expenses such as electricity, petrol and insurances are still on the rise, putting extra pressure on household budgets at a time when many are already at breaking point,” she said.
“The RBA has bought itself yet another month to assess how households are holding up under the weight of the previous 12 cash rate increases. It has said more hikes could be necessary but it’s not going to lift the cash rate again unless it is absolutely necessary.
“If the central bank is going to move in the next six months, it’s more likely to be a hike, rather than a cut, because for the bank, taming inflation is a non-negotiable. If you need financial relief, you’ll need to go and get it yourself.
“RateCity.com.au analysis of RBA data shows the average owner-occupier on a variable rate has managed to duck 0.63 percentage points of rate hikes in the last year and a half by either haggling or refinancing their loan.
“If you’ve got a mortgage, don’t angle for an average cut, aim higher.
“There are still 32 lenders offering at least one variable rate under 5.75 per cent, and while many of them are for ‘ideal’ borrowers, if you live in the home you own and have been paying down your debt for a few years, that’s likely to be you,” she said.
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Product database updated 19 Nov, 2024
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