Mortgage Broker, What If We Finance believe the next change to interest rates will be down rather a rise as today’s inflation numbers showed a slight easing in underlying inflation.
Underlying inflation (or trimmed mean inflation) the preferred measure of inflation was 3.8% well below market expectations of 4.0% and the result was as per RBA expectations.
Interest rates expected to fall
Financial markets and mortgage broker What If We Finance now believes an interest rate rise in August is extremely unlikely.Financial markets believe an interest rate cut in February 2025 is almost certain.
Other economists also point out that an interest rate reduction may occur as early as November 2024. Economists believe one more quarter of disinflation (a fall in the underlying inflation rate) will be enough to convince the RBA to commence the interest rate reduction cycle
Inflation Remains sticky amongst services
A concern for financial markets is that inflation continues to persist amongst the service sector and housing. Despite the lower underlying inflation rate, inflation remains, persistent and sticky for households and services.
The RBA will potentially see this as a worrying sign, because these areas, services and household items are sensitive to increase demand and could lead to spike and inflation again. Optimistically their price growth is not accelerating.
The areas driving inflation include rents, alcohol, tobacco, health, education and insurance. These items can be seasonal or indexed by government so hope remains for their price growth to subside.
The cost of building home has an annual inflation rate circa 5% and this is being driven by state government projects which are causing rapid increases in labour costs and building materials.
What does this mean for home loans?
Relation is one of the key factors that drives home loan, interest-rate’s. As inflation increases, we can expect interest rates to rise. This means your home loan repayments increase and you can borrow less. Rising interest-rate’s means more of your household income goes towards paying off your mortgage and you have like less money to spend on discretionary items.
Recent talk of cost-of-living pressures effectively refers to higher inflation which leads to higher mortgage repayments. Interest rates of all I have increased 2.5 times or 250% in the past two years and imposed, a substantial cost and strain on households with mortgages.
The RBA typically reduces interest rates by 0.25% and in rates fall by 0.25% an average mortgage of 700,000 will mean approx. $100 per month in savings or $1,200 per annum or $32,000 approx. over the life of the loan.
Every 0.25% reduction interest rates can increase borrowing power by $15-$25,000 depending on your financial circumstances.
Mortgage broker Melbourne, What If We Finance can help. Since 2008 we have been helping borrowers find an unbeatable deal help. Contact Melbourne’s best mortgage broker to find out more.
