RBA holds: What borrowers should do this Easter with a pause

The Reserve Bank has left the cash rate on hold at 3.60 per cent today, hitting the pause button for the first time since April 2022.

In the Governor’s statement today, the RBA has said a pause will buy it some much needed time to better assess the impact the previous 10 rate hikes are having on households and the Australian economy.

Governor Lowe also indicated the Board is monitoring volatility overseas carefully.

While the cash rate is on pause, the Board has said more hikes may be needed. However, this will depend on incoming data over the next few months.

Many borrowers are already feeling the burden of higher rates, and are still yet to feel the full impact of all 10, as rate hikes typically take two to three months to hit people’s bank accounts.

Rates on hold, but borrowers still to feel the weight of the last 10 hikes

Source: RateCity.com.au. Based on an owner-occupier paying principal and interest with 25 years remaining. Starting rate is the RBA av. existing owner-occupier variable rate of 2.86% in April and assumes banks pass the hikes on in full.

Capitalising on the refinance boom

Borrowers are being urged to use this pause to get themselves a better deal.

Since the start of the hikes (May 2022) a total of $185.35 billion worth of loans have been refinanced, according to the latest ABS lending indicators released yesterday.

RateCity.com.au analysis shows the average owner-occupier who hasn’t haggled since the start of the hikes is on a rate of 6.36 per cent. However, there are still seven lenders offering variable rates (excluding intro loans) under 5 per cent.

Banks are also throwing a huge range of perks at the feet of borrowers willing to switch lenders, including:

• 32 lenders offering cashback deals, including all big four banks, primarily for refinancers,
• 2 lenders offering frequent flyer points,
• 2 lenders offering loyalty discounts.

Plus some lenders are offering rate discounts for new customers and fee-waivers.

How much can variable borrowers save by refinancing?

If someone with a $500,000 debt today and 25 years remaining on their loan refinanced from the average variable rate to one of the lowest in the market, RateCity estimates they could save up to $12,396 in the next two years. This includes the costs of refinancing and assumes the cash rate moves in line with NAB’s forecast.

Potential savings by refinancing

Based on an owner-occupier paying principal and interest with 25 years remaining on their loan switching from a rate of 6.36% to a rate of 5%. Assumes the cash rate changes in line with NAB's forecast. Includes switch costs

Source: RateCity.com.au. Notes: based on an owner occupier paying principal and interest with 25 years remaining on their loan. Assumes borrower is on the estimated average owner-occupier variable rate of 6.36% and moves to one of the estimated lowest variable rates on the RateCity.com.au database. Includes switching costs and assumes the cash rate continues to move in line with NAB’s forecasts.

RateCity.com.au research director, Sally Tindall, said: “The RBA has called for a time out this month to buy some much needed time to collect more data.”

“Every time the RBA hikes the cash rate it takes between two and three months for that extra money to come out of people’s bank accounts. As a result, many households are still only up to their eighth rate hike,” she said.

“The RBA might have hit pause, but borrowers should do the exact opposite. If you haven’t negotiated your home loan recently, use the Easter break to get yourself a better deal.

“While CBA, NAB and ANZ have scaled back their new customer discounts in the last three weeks, the market is still incredibly competitive for borrowers looking to switch, particularly if they’re willing to go beyond these big banks.

“With just under $20 billion worth of loans up for grabs every single month, most lenders are climbing over each other to win a decent slice of the refinancing pie,” she said.

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