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Rate relief: Mortgage holders could see cuts 'within months'

The rapid interest rate hikes have paused but for how long?

Composite image of RBA governor Philip Lowe looking serious and money.
RBA governor Philip Lowe has warned of more interest rate rises. (Source: Getty)

When the Reserve Bank of Australia (RBA) kept the official cash rate at 3.60 per cent earlier this month, it brought to an end the most extraordinary series of cash rate hikes in history.

The question is – is this just a short pause before we see a continued upward climb? Or can we expect rates to fall back again before the end of the year?

Also by Graham Cooke:

For the typical variable-rate mortgage holder with a $600,000 loan, the 10 consecutive rate hikes delivered since May 2022 have contributed approximately $13,000 to annual repayment costs – a substantial increase for Australians also dealing with rising inflation and a higher cost of living.


Homeowners who secured a low fixed rate a year or more prior will be shielded from these increases but even those borrowers will be very conscious of the clock gradually counting down until their fixed rate expires, at which point they could be slugged with the full impact of all 10 rate increases at once.

While the RBA itself has said Australians should expect more rate rises to come this year, a number of other sources are now pointing to a potential rate cut before the end of the year.

The International Monetary Fund (IMF) unveiled a bleak forecast for the global economy just last week and did not spare Australia. The IMF anticipates a significant slowdown in worldwide growth, leading to decelerating inflation and, consequently, reduced interest rates. In a recent blog post, it stated: "Overall, our analysis suggests that the recent uptick in real interest rates is likely to be temporary. Once inflation is reined in, central banks in advanced economies are expected to relax monetary policy, steering real interest rates toward pre-pandemic levels."

Finder’s latest RBA Cash Rate Survey, the largest monthly survey of economists in Australia, revealed that although the majority of economists anticipated one more cash rate increase to 3.85 per cent in May, many predicted reductions beginning as early as August this year.

A graph showing the forecasts of 36 economists for potential interest rate cuts.
Rate increase woes (Source: Finder) (Finder)

When asked when they expected the first cash rate cut, 11 out of 36 respondents provided dates towards the end of 2023. Among them were Nicholas Frappell of ABC Refinery (August), Evgenia Dechter of UNSW (October), Stephen Halmarick of Commonwealth Bank (November) and Shane Oliver of AMP (December).

It is often said that asking five economists (or, indeed, 36) a question will yield five entirely different answers. However, there is value in consensus. The largest group (eight economists) expected the first cut two months later, meaning the majority of experts surveyed were forecasting the cash rate would start falling by February 2024. Mortgage holders will certainly be hoping this is the case.

So, what does this mean for the housing market? Well, it depends on who you ask. CoreLogic data suggest house price declines are easing, while prices have even increased in Sydney. Conversely, the aforementioned IMF considers Australian housing to be relatively high-risk, ranking it second-riskiest globally, trailing only Canada. High household debt, a low percentage of homes owned outright and a high number of mortgage holders on variable rates contribute to this classification.

The truth is that while numerous indicators suggest an eventual easing of inflationary pressures towards the end of the year, very few experts foresaw the coming of the factors driving this crisis (such as COVID-19 and Russia's attack on Ukraine) so really, anything could transpire in the coming months.

So what should Australians right in the firing line of copping more rate hikes do? For now, mortgage holders on a fixed rate can still take a proactive step to buffer against future economic strains:

  • Open a high-interest savings account, saving as much as feasible before the fixed rate expires

  • Use those savings to pay off as much of your mortgage as possible before transitioning to a higher rate

  • Savings accounts are the one financial product to increase dramatically in value over the past 12 months, providing a potential route to a softer landing for consumers struggling with the increased cost of living

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