Reserve Bank Expected to Keep Rates Steady in October Despite Rising Inflation as More Households Prepare for Mortgage Clif

Are you among the hundreds of thousands of Australian homeowners preparing for the rising fixed-rate mortgage cliff? As inflation inches upward, the Reserve Bank’s recent decision may leave you wondering about your mortgage’s future. Let’s explore into the latest insights and strategies to help you prepare for potential changes. 

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Inflation Uptick, RBA Decision, and Mortgage Holders

In August, Australia experienced a slight uptick in inflation, with consumer prices rising by 5.2% annually, up from 4.9% in the previous 12 months. However, economists don’t anticipate the Reserve Bank of Australia (RBA) to raise interest rates in its October meeting, primarily due to a decrease in core inflation, which excludes volatile items like fuel and food.

The RBA has repeatedly stated that it may need to raise the cash rate to control inflation in the future, potentially impacting over 600,000 mortgage holders approaching the fixed-rate mortgage cliff. This cliff marks the expiration of ultra-cheap, fixed-rate home loans signed during the pandemic when the RBA had lowered the cash rate to 0.1%.

By the end of 2024, around 155,000 mortgages are set to reach this cliff, with another 450,000 expiring in 2024. Since the peak of pandemic-driven fixed-rate mortgages in 2022, the proportion of borrowers opting for fixed-rate loans has decreased substantially.

Mortgage Stress and Short-Term Resales

Despite the recent slight uptick in inflation, the impact of rising interest rates is evident in the housing market. Property data and analytics firm CoreLogic reported an increase in properties being sold at a loss, with the portion of loss-making short-term resales rising from 2.7% to 9.7% over the past year.

Moreover, short-term resales reached a record high in August, comprising 16% of all property listings for homes owned for less than three years. While late mortgage payments have increased slightly, they remain at low levels compared to the height of the pandemic.

Planning Ahead and Seeking Solutions

The expiration of fixed-rate loans has raised concerns about potential mortgage defaults. However, this has not materialized for several reasons. Many homeowners have taken advantage of the opportunity to refinance or negotiate better rates with their banks.

Additionally, some have used the lockdown period to make extra mortgage payments or have benefited from pay raises. Nevertheless, there’s a risk that some borrowers may face financial difficulties down the road if they are not prepared.

What Can You Do?

  1. Review Your Finances: Assess your current financial situation, including savings, income, and expenses. Identify areas where you can cut back to create a financial cushion.
  2. Contact Your Lender: If you anticipate challenges, don’t hesitate to contact your lender. Some borrowers have successfully negotiated hardship policies or refinanced their loans. Discover your ideal home loan lender ideal home lender to match your unique financial needs and preferences. You can book your appointment now.
  3. Plan for Rate Rises: While the RBA may not increase rates immediately, it’s wise to prepare for the possibility. Calculate how rate hikes may affect your mortgage payments and budget accordingly.
  4. Explore Refinancing: Investigate whether refinancing your mortgage at a lower rate makes sense for your financial situation. This could potentially lower your monthly payments.
  5. Create a Contingency Plan: Consider creating an emergency fund to cover unexpected expenses. Having a financial safety net can ease the pressure during tough times.

In conclusion, while the RBA’s October decision may not bring an interest rate increase, homeowners should stay vigilant and be prepared for potential changes. Navigating the fixed-rate mortgage cliff requires careful financial planning and proactive communication with lenders. By taking these steps, you can better safeguard your financial well-being and weather any economic uncertainties that lie ahead.

CEO, Senior Mortgage Broker

Lekha Gurung

Lekha Gurung is an experienced mortgage broker from Sydney who expert in assisting first-home buyers, property investors, refinancing, etc. He has settled more than 300 loans till now. Our Services include First Home Buyers Loans, Investment Loans, Refinancing, Personal Loans, Business Loans, Reverse Mortgage, Credit Default Loan, Low Docs Loan, assistance in property research, and Insurance referral arrangements.

Additionally, Lekha Gurung offers Free Home Loan Consulting and Home Loan Advice. Recognizing the complexities of the mortgage process, these no-cost, personalized consultations are available for free to everyone. Lekha will provide expert guidance tailored to your financial needs, ensuring you make informed decisions in your property financing journey. Simply fill out a form and pick a date to book your Free Session today!

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