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RBA makes first cash rate call for 2023
After eight consecutive interest rate increases in the last calendar year, find out — in this special announcement brought to you by Legal Home Loans — if the Reserve Bank has started the new year with another rate hike.
Jerome Doraisamy
In its February interest rate decision — the first one for 2023 — the board of the Reserve Bank of Australia decided to increase the cash rate by 25 basis points, to 3.35 per cent.
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In a statement, RBA governor Philip Lowe said that the board’s priority is to return inflation to target.
“High inflation makes life difficult for people and damages the functioning of the economy. And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later. The board is seeking to return inflation to the 2–3 per cent range while keeping the economy on an even keel, but the path to achieving a soft landing remains a narrow one,” he said.
“The board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary. In assessing how much further interest rates need to increase, the board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market. The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.”
In conversation with Lawyers Weekly, Legal Home Loans general manager Aylin Unsal said that she expects that banks will pass on today’s increase to borrowers within the week.
“The current average interest rate range for residential loans we are seeing is approximately between 4.6 per cent [and] 5.0 per cent, depending on the product and your borrowing profile. Today’s increase will lead rates to rise by a further 0.25 per cent,” she detailed.
“Mortgage holders locked into historically low fixed rates should be aware that there will be a significant increase in repayments when their fixed term ends, which they may want to start budgeting ahead of time for.
“Anyone concerned about rising mortgage repayments and impact on household budgets should speak to their bank or broker about the best structure suited to their needs as soon as possible.
“We recommend doing this three months prior to your fixed-term expiry.”
For those seeking new loans, Ms Unsal continued, higher rates mean lower borrowing capacity.
“Banks currently assess your affordability with a 3 per cent buffer above the offered interest rate to ensure you can keep up with repayments. Buyers with existing pre-approval are advised to speak with their bank or broker to confirm any impact to borrowing capacity before making offers, as it may be decreased,” she outlined.
While the future can feel unknown, Ms Unsal reflected, lawyers should know that their advantaged position with lenders has not changed.
“Exclusive benefits, such as waived lenders mortgage insurance when buying with a deposit less than 20 per cent, are very much still available,” she noted.
“As long as you do the due diligence of being prepared and have a good broker by your side, now is a great time to make a move.”
