Finder RBA Survey: Mortgage borrowing to keep surging as cash rate holds at 0.10%

Home loan borrowing could surpass current levels within the next six months, despite riding a record-breaking high since October, according to experts.

In this month's Finder RBA Cash Rate Survey™, 40 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy.

Borrowing has been at unprecedented levels since late 2020, yet three in four experts (25, 75%) predict that it will surge even further over the next six months as Australians scramble to take advantage of low interest rates.

This comes as the latest ABS Lending Indicators figures show that new loan commitments for housing rose 5.5% in March – a 55.3% rise through the year.

Graham Cooke, head of consumer research at Finder, said that the last six months of borrowing may just be the tip of the iceberg.

"Property demand is continuing to run rampant, with buyers spurred on by a combination of fear of missing out and low interest rates – many of which are beginning to rise.

"The last six months saw the highest amount borrowed to purchase housing over any six-month period in history. What economists have told us is that the next six will be record-breaking.

"While low rates mean lower repayments, tread cautiously – if you overextend yourself and rates rise, you may find you have a tiger by the tail," Cooke said.

According to Tony Makin of Griffith University, regulatory controls may be necessary to halt borrowing rates down the track.

"Future interest rate rises and/or macroprudential controls will curb excessive borrowing at some point, dampening the current pace of house price growth," he said.

Over half of the experts who weighed in (13, 59%) forecast the national number of auctions to increase in the coming quarter, surpassing the Q1 total of 19,000.

But this may not be a good thing for those trying to buy. One-third of respondents (11, 34%) say auctions are artificially inflating property prices across the country.

Rental market revival to come, say experts

Australia has maintained a two-speed rental market throughout the past year, with prices dipping in capital cities and soaring in regional towns.

A third of respondents (11, 35%) believe that rental prices will remain steady across the country over the next 12 months, while another 50% (14) say prices will increase by 5% on average across the capital cities.

A price increase of 5% would see the average rent for a unit go up by $20 per week.

The jump would affect Canberra most, with weekly rent moving from $497 to $522 (+$25), followed by Sydney where the average weekly rent would increase from $453 to $476 (+$23).

Average weekly rent across the capital cities (units)

Source: Finder, SQM research, Weekly rents index April 2021

This rent increase is predicted despite the fact that just 28% (9) of respondents believe that the number of international students will return to pre-pandemic levels within a year of international borders fully reopening.

Cooke said that a rental market revival won't happen overnight.

"The rental market, flattened by the pandemic, is set to recover at a much slower rate than the housing market.

"What this market is really dependent on is the full opening of international borders – something we will not see until 2022 at the earliest.

"The absence of international students and migrants has caused prices to nosedive in the capital cities, and this may continue for some time if numbers don't pick back up soon," Cooke said.

Experts say cash rate to continue to hold, but some banks raising longer-term rates

All 40 experts correctly predicted the cash rate would hold this month and 65% (26/40) don't think we will see any movement until 2023.

In total, just 15% (6/40) of our experts expect the cash rate to rise in the coming financial year, with only Tony Makin of Griffith University expecting a rise before 2022.

On Friday 30 April, UBank announced it would increase the rate on its UHomeLoan 3-year fixed loan by 10 basis points to 1.85%.

It follows a week where Westpac increased its 4-year fixed rate home loan from 1.89% to 2.19%, ending its run as the provider of the lowest 4-year fixed rate on the market. The Big Four bank also increased its 5-year rate to 2.49%.

Westpac's increases have been rolled out across the group's subsidiary banks, including St.George, Bank of Melbourne and BankSA.

These latest fixed rate increases come hot on the heels of CBA lifting fixed rates on its 4-year loan product in March from 1.89% to 2.19%, but at the same time, reducing its 1- and 2-year rates.

Over a dozen other lenders reportedly followed suit, lifting their interest rates for 4- and 5-year loans.

Cooke said lenders were likely to continue to increase longer-term rates in preparation for a cash rate hike in the future.

"This sudden wave of lenders increasing longer-term rates and decreasing shorter-term rates reveals a strategy to lock their customers in for shorter time periods.

"This can be seen as a bet on variable rates increasing sooner than expected.

"It also reveals that the tide could be turning on our historically low fixed home loan rate environment.

"If you have a home loan and locking it in for a short period suits you, now is the time to compare some of the best mortgage deals on the market before they are gone," Cooke said.

Here's what our experts had to say:

Nicholas Frappell, ABC Bullion: "Conditions will probably shift the timing of a rate rise forward, although it will hinge on wage growth. Lack of wage growth will tend to push over tightening back towards 2023."

Shane Oliver, AMP Capital: "While the economy is recovering faster than expected, the RBA is still a long way away from seeing its stated requirements for a rate hike – being a tight jobs market, wages growth well above 3% and actual inflation sustainably within the 2-3% target range. So a rate hike is still a fair way off although I think it will come before the RBA's expectation for '2024 at the earliest'."

David Robertson, Bendigo Bank: "The RBA will most likely start to tighten policy by an increase in interest rates in early 2023 or late 2022, the timing dependent on the pace and success of vaccination programmes."

Sean Langcake, BIS Oxford Economics: "The labour market recovery has progressed much quicker than the RBA anticipated. But the economy is still a long way from the conditions the RBA have indicated will precede a rate rise."

Ben Udy, Capital Economics: "While labour market outcomes have continued to surprise to the upside, the RBA has lowered its view of the natural rate of unemployment so the labour market still has a long way to go before the RBA will be satisfied."

Peter Tulip, Centre for Independent Studies: "Inflation will remain below 2% and unemployment will remain above the NAIRU until 2024."

Mala Raghavan, College of Business and Economics, University of Tasmania: "The cash rate will only start moving upwards when inflation and unemployment rates are comfortably above 2% and below 6% respectively. It might take a while to achieve these targets."

Stephen Halmarick, Commonwealth Bank: "It will take until Q2 2023 or 2024 before inflation is sustainable inside the RBA target range."

Saul Eslake, Corinna Economic Advisory: "I agree with the RBA that it will take some time for unemployment to fall to a sufficiently low level to trigger wages growth fast enough to ensure price inflation sustainably within the RBA's 2-3% target range – but I suspect that situation may be reached before '2024 at the earliest'."

Craig Emerson, Craig Emerson Economics: "The RBA has indicated it will not increase the cash rate for several years or until the unemployment rate falls to around 4%."

Peter Boehm, Director: "It's steady as she goes for now as far as the RBA's cash rate is concerned. But while the RBA has signalled it will keep rates low for the next two to three years, its hand may be forced if inflation starts to increase. We are already experiencing material house price growth, and now with a shortage of skilled migrant labourers, there is increasing upward pressure on wages. These (and other) factors, if allowed to continue their upward trend, may see interest rates rise sooner than expected."

Angela Jackson, Equity Economics: "While the economy is currently performing strongly, some of the heat from the post-pandemic bounce is expected to dissipate in the second half of 2021, especially given the ongoing border closures. The RBA is expected to maintain its interest rate policy under this scenario."

Mark Brimble, Griffith University: "The economy still requires support and the COVID-19 future is not clear, particularly with problematic vaccine roll out and questions re long term on for quarantine."

Tony Makin, Griffith University: "Australia's interest rate spectrum is ultimately influenced by global factors, most notably US interest rates. Ten-year US Treasury rates have risen around 70 basis points since the beginning of the year and will keep rising due to the huge US budget deficit and higher expected inflation. The RBA will be unable to stem this tide."

Tom Devitt, Housing Industry Association: "After a short-term burst in activity in 2021 and maybe 2022 as a result of fiscal stimulus, home building and households exploiting their accumulated savings, Australia's economy will still be affected by the same factors that suppressed interest rates, inflation, wages, productivity and economic growth pre-COVID. This includes a world awash in savings, ageing populations and limited private sector investment opportunities. And now we have the addition of suppressed population growth. Even if the government exploits its record-low borrowing costs to invest in the necessary long-term infrastructure and reforms, it will take a number of years to get the labour market tight enough to generate the wage growth that will force the RBA's hand on interest rates."

Alex Joiner, IFM Investors: "The RBA will look through any near-term inflation, and once the stimulus acceleration in growth fades, the economy will still be away from full employment – the RBA will have to keep policy accommodative."

Michael Witts, ING Bank: "The timing of the RBA is uncertain, the first half of 2023 is possible at this stage, although the strength of the domestic recovery may see this timeline move forward."

Leanne Pilkington, Laing+Simmons: "While there have been some concerns raised recently about rising house prices and therefore household debt, low rates remain an important foundation for the economic recovery and we believe it's prudent for the Reserve Bank to maintain the course it has previously stated."

Nicholas Gruen, Lateral Economics: "The recovery will be strong and will stimulate some inflation, though it will take some time for it to materialise and longer for it to work its way into expectations."

Mathew Tiller, LJ Hooker: "The RBA has continued to indicate that it will keep the cash rate steady for the time being. This is despite improving economic data and very strong increases in dwelling prices."

Geoffrey Kingston, Macquarie University: "Inflationary pressures are building up more quickly than is generally realised."

Michael Yardney, Metropole Property Strategists: "The RBA has made it clear it won't increase interest rates until unemployment is so low that we get consistent wages growth."

Julia Newbould, Money magazine: "If the economy continues to grow and unemployment stays relatively low, the bank might start to increase rates to combat inflation and perhaps cool the property market."

Susan Mitchell, Mortgage Choice: "The economic recovery is supporting remarkable growth in consumer sentiment and we're seeing record growth in the housing market but we are a long way off any changes to the cash rate. RBA board members were clear in the minutes of the April monetary policy meeting – the cash rate will not be increased until inflation is within the target range, wages growth improves and the labour market strengthens."

Dr Andrew Wilson, My Housing Market: "Clearly no rational case for interest rate move in foreseeable outlook."

Rich Harvey, Propertybuyer: "I think the RBA will move rates up sometime in 2022 as the economy is rebounding faster and stronger than anticipated with stimulus money flowing through and commodity price giving the terms of trade a nice boost."

Matthew Peter, QIC: "Although headline inflation will lift this quarter and next, most of the rise will reflect transitory effects which the RBA will look through. Core inflation rates will remain low, reflecting low wage growth, and the RBA will keep forward guidance for a first rate hike in 2024."

Cameron Kusher, REA Group: "RBA have their credibility on the line and they will choose to wait longer to be sure that they achieve their inflation and full employment targets. That is still likely to take some time."

Christine Williams, Smarter Property Investing: "The global market will eventually move once the pandemic is under global control."

Jonathan Chancellor, Urban.com.au: "There's no prospect of any official cash rate move for many months, but home borrowers can expect more increases to long-term fixed rates as banks prepare for the end of the RBA's term funding facility."

Dale Gillham, Wealth Within: "The economy is starting to move in the right direction; however, there is still a long way to go with combating COVID and getting back to what is a normal economy again. Therefore, we are unlikely to see major growth at a level that is enough to warrant an increase in interest rates."

Other participants: John Hewson, ANU. Jeffrey Sheen, Macquarie University. Alan Oster, Nab. Malcolm Wood, Ord Minnett. Noel Whittaker, QUT. Jason Azzopardi, Resimac. Sveta Angelopoulos, RMIT. Jakob Madsen, University of Western Australia. Bill Evans, Westpac.