The first interest rate decision under the new governor of the Reserve Bank of Australia, Michele Bullock, came on the same day data showed just how massively more costly new home loans are than they were expected to be just three years ago.
The main stamp Bullock put on the governor’s statement announcing the cash rate decision was to change the final sentence that was used in the September statement from “The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that” to “The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome”.
Given how much time is spent analysing the governor’s statements and speeches, we should not be too shocked that there was little change between the language in Philip Lowe’s last statement and Bullock’s first.
All up, the general tone of the statement, as has been the case since July, is that the RBA thinks it is done raising rates, but wants to make sure the markets and those whose decisions affect the economy still believe that they might raise them again.
Before the decision, the market was fully pricing in another rate rise to occur by April next year. Now it is less sure. Investors still think it is more likely than not there will be at least one more rate rise, but that in 18 months’ time we’ll be back where we are now:
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For homeowners and those hoping one day to be able to afford a house, this is good news compared to what they have endured in the past year and half.
This rates decision came a few hours after the release of the latest home-finance data that showed a bit of an increase in the total value of home loans.
While a 2.2% increase in August might seem large, after a couple of months of falls it all makes for a bit of a wash.
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But while the total dollar value of new home loans is well down on the peak during the pandemic stimulus, it remains well above pre-pandemic levels.
This is despite the number of new home loans in August being roughly around the level that was occurring just before the pandemic, and below that of 2016-19:
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This translates into larger home loans than was the case before the pandemic.
While the average new home loan size is down from the peak of January 2022, when in New South Wales it reached a gasping $803,235, it remains well above what would have been expected three years ago.
From November 2011, when the Reserve Bank began its long run of cutting rates, until the end of 2019 the average mortgage size rose pretty much in a straight line. Then the pandemic stimulus saw a huge boom.
That boom is now over, but we’re not back to where we would have expected to be:
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It is decidedly not just a Sydney and Melbourne issue: all states have been affected.
Someone living in Tasmania in 2019 who was thinking they might have enough to take out a home loan after a few more years of saving would find themselves now rather short:
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But while the size of new home loans has exceeded expectations, so too have the repayments. This is not just because of the increased home loans, but of course also the increase in interest rates.
From 2013 to the end of 2020 the repayments on new average home loans also rose in a nice straight line.
But no longer.
At the end of 2020 you could look back seven years and think by now the average repayments on a new home loan would be about $2,478. Instead, they are about $1,473 a month more at $3,915:
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That is a massive impost on the ability to afford a home loan.
And it is little wonder that mortgage holders are shopping around like they never have before:
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In August, 26,539 home loans were refinanced by external providers – just down from the record in July of 28,041. People are leaving their original lender and getting better deals elsewhere.
Before the pandemic the previous Reserve Bank governor suggested you should ring your bank and get a better deal. With interest rates rising, that remains even more potent advice, and one that it seems a record number of Australians are taking.
Whether the new Reserve Bank governor will oversee rates going up further or whether we are about to embark on a sustained period of stable rates, the reality of the current situation means it is tougher than ever for most to pay off a home loan.
And your bank will never offer you a better deal unless you ask them.
• Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
