Interest Rates cuts and increases in Australia

There were quite a few rate increases from May 2022 to November 2023 and then a lengthy period with the Reserve bank holding the rates steady for more than 12 months.  We finally had our first rates decrease in February 2025, others in May and July 2025 with more anticipated during the rest of the year.

So what does that mean for the property market in the year ahead and especially how will it impact for the first home buyers entering the market.  It could be good news but a word of warning.

How would you feel if your repayments increased to the levels we had in the 1990’s.  The highest the  interest rates got to  during that time was 17% so just imagine how much you would have to pay if that happened again.

Paying this extra amount would be an impossible ask for almost every household, which is why the likelihood of rates rising that high ever again is probably never going to happen. The return to the 1990 interest rates would destroy almost every household’s finances.

The RBA uses its official interest rate (also known as the cash rate) as a tool to try to control inflation and economic activity. The theory is that lowering the cash rate increases consumer and business spending and fuels the economy, while raising the cash rate slows things down.

Since the 2008-09 Global Financial Crisis the RBA has mainly been lowering the official rate because consumers and businesses have been afraid to spend. In November 2020 the cash rate sat at a record low 0.1 per cent.  The highest since then was 4.35% and we now are seeing the gradual decline in rates to who knows where.

Lenders have been raising and lowering their rates accordingly but tis doesn’t always reflect the actual RBA rate changes.  If the cuts are less that the decrease or the increases more than the changes to the  RBA cash rate then this has a similar effect as an official interest rate rise — borrowers pay more.

There is really no need to worry about any huge rate rises as this would be likely affect most households hard enough to hurt the economy and probably quickly lead to more RBA rate cuts.

DO YOUR HOMEWORK

Always talk to you mortgage broker or bank first to ensure that if the rates go up again that you can afford to pay these higher rates.  If your budget can handle rate rises of 2-3 per cent the you should be fine for at least the next few years.  However APRA dictates the lending criteria and other rules that the banks have to abide by.  The criteria is constantly changing and you will have to meet whatever affordability criteria the bank has to service a loan.

It is quite common to hear as soon as interest rates rise that home owners are unable to service the higher amounts and then need to sell urgently and you do not want to be one of these statistics.

Doing your homework and calculating payments on higher interest rates would be a wise thing to do so YOU don’t get caught out.  If the RBA reduce the rates again this year this would be a windfall for anyone who owns their own home.  If this happens it is also a good idea to pay the same amount off your loan which will reduce the term of the loan quite dramatically and also be a saving towards any future increases.

Talk to your Conveyancer or Mortgage broker BEFORE you sign the contract to ensure you are fully aware of all the consequences of changes in the RBA rates.

The team at McKay Business Services are all members of the AICSA and are proud Adelaide conveyancers