The Impact of Interest Rates on Home Loans in 2024

Lending expert discussing the impact of interest rates on home loans with client

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Lending expert discussing the impact of interest rates on home loans with client

Key Takeaway Table

Key Point Description
Home Loan Interest Rate Landscape and Forecasts
When the RBA lifted the cash rate in November, the rate was the highest in 12 years. As a response, banks also raised their home loan interest rates passing the rate on to homeowners, with the average loan rate for owner-occupiers reaching 7.26% for variable rates and 6.72% for fixed rates.
Interest Rate Forecasts
Some take the consistent cash rates from the RBA as a sign that the tightening cycle is over and the rates are finally coming down. However, since the market is still volatile, experts are still not ruling out the possibility of future hikes.
How Interest Rates Influence Borrowing and Housing Prices
High cash rates affect home loan interest rates across banks and lenders. When rates rise, borrowers with variable rates must pay higher monthly repayments, potentially affecting their capacity to pay the loan. However, cash rates aren't the only determining factor for home loan rates. Global markets, lenders' policies, competition, and borrower-specific factors also play a role.
Understanding Variable and Fixed Rate Home Loans
Fixed-rate loans have unchanging interest rates within a set period, usually around one to five years. Within this period, the borrower is protected from any hikes and fluctuations in the market. Meanwhile, variable rates can be directly affected by economic and market factors.
Buying a Home Now vs. Waiting to Buy
The market is still unpredictable, so it's unclear whether buyers should purchase homes this year or wait longer. If they buy now, a benefit will get out of high rental costs and they could start building equity. Meanwhile, if buyers wait, they could benefit from lower rates if the RBA begins to cut rates.
Strategies for Home Owners and Home Buyers in 2024
Homeowners and home buyers can adopt a few strategies to help them navigate the housing market this year. Buyers can consider rate lock options if they’re concerned rates will rise further and homeowners can lower their mortgage costs by refinancing. If you’re buying, lower your future repayments by saving up the largest deposit you can manage.

Australia’s housing market is intimately tied to the fluctuations of interest rates, and understanding this relationship is crucial for prospective homebuyers and current homeowners alike. With the Reserve Bank of Australia’s (RBA) cash rate influencing lenders across the nation, a deep dive into how these rates affect home loans is timely, especially as 2024 unfolds with its own economic narratives.

The Current Landscape of Home Loan Interest Rates

This increase is part of a continuing response to inflation.

In November 2023, the RBA raised cash rates to 4.35%, a 12-year high, significantly impacting borrowers. Currently, the RBA’s cash rate still stands at 4.35%, remaining unchanged for three meetings in a row. Some view the unchanging cash rates as a sign of rates peaking, but potential hikes still can’t be ruled out.

As a response to the RBA’s hikes, lender’s home loan interest rates have also risen since November 2023. Since early 2024, the average variable home loan rate for owner-occupiers stands at 7.26%, and fixed rates at 6.72%.

Table: Big 4 Banks Home Loan Interest Rates Early 2024

Here are the standard home loan interest rates offered by Australia’s major banks.

(As of February 27, 2024) – Contact us to request a pricing discount on these rates.

Bank Variable Rate Fixed Rate
NAB[1][2]
6.84%
6.59% (2 years)
6.49%
6.59% (3 years)
6.44%
6.59% (1-5 years)
ANZ
7.24%
6.54% (2 years)

Key Predictions for 2024 Interest Rates

Predictions from Australia’s major banks suggest that the current cash rate may have reached its peak, with expectations of cuts happening later this year. This consensus among major banks means that inflation is expected to ease, allowing for lower interest rates. However, these predictions are not set in stone and are subject to the influence of evolving economic conditions.

The Influence of Interest Rates on Borrowing and Housing Prices

When interest rates are high, mortgage repayments increase, affecting people’s capacity to pay their loans. In the long run, rising rates can result in a decline in new housing borrowing. Although benchmark RBA rates are a major factor in determining housing loan rates, the drivers for rate costs are complex and global and domestic factors influence the interest rate lenders charge. Some of these factors are:

Understanding Variable and Fixed Rate Home Loans

When applying for a home loan, borrowers are given the choice between a variable or a fixed rate (or a combination of both). A variable rate changes depending on several factors like economic factors and the RBA’s official cash rate.

Meanwhile, fixed rates remain the same within a certain period, which is around one to five years. At the end of fixed rate periods, borrowers usually have the option to refix or refinance their loans.

Fixed rates are usually set higher than variable rates. However, borrowers can still benefit greatly as they are protected from hikes, like the continuous ones that happened in the past two years.

Making the Informed Decision: Buy Now or Wait?

Based on 2024 predictions, should homebuyers take the leap and purchase a home this year? The predictions may look promising, but there’s still a chance for rates to hike or remain the same.

The Case for Buying Now

Property appreciation

High rental costs

With rents increasing, buying a home may provide peace of mind or an investment opportunity.

High rental costs

Property appreciation potential

Ideal for businesses that either do not have assets to offer as security or business owners who choose not to tie up their property.

advisor icon

Building equity

Each principal mortgage repayment lowers your debt and contributes to improving your financial position.

Financial Analysis

Inflation Slowing

The slowdown in inflation suggests that the aggressive monetary policy tightening could start to ease. If rates reduce property prices may start to stabilise, creating the potential for it to be a good time to buy before the market adjusts to lower interest rates and prices increase​​.

The Case for Waiting

Dollar1

Potential for Future Lower Rates

Those who wait to purchase could benefit from lower borrowing costs if they buy after rate cuts.

Uncertainty

Economic Uncertainty

Buyers may benefit from waiting to see how economic uncertainties unfold​​ this year.

Real Estate2

Larger Deposits

Buyers can take their time to save a larger deposit, which can lead to reduced mortgage amounts and interest costs.

Strategies for Prospective Homebuyers & Home Owners in 2024

Here are strategies for homebuyers to consider to help them navigate the Australian housing market this year:

Shop around.

Don’t just look at one lender. Compare rates, fees, and terms from multiple lenders, including banks, credit unions, and non-bank lenders. Each lender has different criteria and offers, so take time to understand which is best for your circumstances.

Negotiate with lenders.

Existing homeowners can ask their existing lenders for a reduction in rate.  If your loan-to-value ratio (LVR) is under 80% and you have a good repayment history, you should be a desirable borrower to your lender and in a position to ask for a rate reduction.

Ask about rate lock features.

When applying for a loan, inquire about rate lock options, which allow you to lock in a rate for a certain period during the loan processing phase. If you’re concerned about rates rising further this can provide you comfort you won’t pay any more than when you first enquired.

Consider refinancing.

Look into the options — a refinance for existing mortgage holders could result in a lower rate and potentially a cash-back offer.

Save for a larger deposit.

Saving for a larger deposit not only reduces the amount you need to borrow but can also help you secure a lower interest rate. Lenders will usually offer lower rates for lower LVR loans.

Stay informed about government policies.

The Australian Government offers several incentives that could help you buy a home. Keep abreast of these offers as they change to take advantage of their benefits.

Applying for a Home Loan in 2024

Interested in applying for a home loan this year? The rates are predicted to decrease, so now may be a good time to start preparing by saving up for a deposit and shopping around for lenders. If you’re not sure where to start, you can turn to us for help. We at Darkhorsefinancial.com.au are loan experts who can help you navigate the home loan landscape of 2024 and direct you to the right loans and lenders. Contact us today to learn more.

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