RBA cash rate steady, but all eyes on potential house price boom once restrictions ease

The Reserve Bank has not been swayed into increasing the official cash rate to take heat out of the property market today, as speculation mounts the market could boom even more once vaccination targets are met and the country reopens.

Australians have been promised that fully-vaccinated citizens and permanent residents will be able to travel overseas from November, once states and territories reach the government’s 70% to 80% COVID-19 vaccination target.

Canstar’s national sentiment checker* of more than 1,000 Australians, completed last week, found 35% of people surveyed expected the property market to heat up even further once restrictions are lifted, whereas just 22% expected it to cool, leaving 43% undecided.

This comes shortly following the latest CoreLogic data, which revealed the average dwelling price surged by more than 20% in the past year, and 1.5% in the past month alone.

Despite the potential for further price hikes and Treasurer Josh Frydenberg indicating a crackdown on new loans to come, many prospective buyers remain undeterred. Approximately 1.2 million Australians (6% of survey respondents) plan to buy a property as their first major purchase once vaccination targets are met, based on Canstar’s survey.

Canstar finance expert Steve Mickenbecker said house prices had been hot since Australia came out of its first lockdown last year, and they looked like they were still getting hotter.

“A late-spring housing boom might still be ahead of us, with vendors perhaps taking advantage of expected buyer demand, bringing increased stock to the market,” Mr Mickenbecker said.

He said the Reserve Bank of Australia (RBA) would not be swayed to increase the cash rate by an overheated property market, instead putting the pressure on the government and APRA to deal with that.

Dr Lowe said in a monetary policy statement today the central bank would not increase the cash rate until wages growth is “materially higher” and actual inflation is sustainably within the 2%-3% target range, which isn’t expected before 2024.

Mr Mickenbecker said regulators may consider a mix of controls to help take some heat out of the housing market, including possible limits or restrictions on investment lending, repayment types, serviceability requirements and high debt-to-income ratios.

“If that is what is ahead, first home buyers already finding the property market a difficult place will have to somehow be quarantined from the impact,” he said.

With property markets booming, Canstar has continued to see competitive new lows in interest rates as lenders chase their share of borrowers, and two larger banks even reduced their interest-only lending rates in recent weeks.

Interest rate moves in September 2021

The following is a snapshot of interest rate movements in September 2021, according to Canstar’s database:

Home loans

• 24 lenders cut 73 variable rates by an average of 0.22 percentage points.
• 2 lenders increased 2 variable rates by an average of 0.18 percentage points.
• 7 lenders cut 50 fixed rates by an average of 0.14 percentage points.
• 7 lenders increased 24 fixed rates by an average of 0.15 percentage points.
• The average variable interest rate for owner-occupiers paying principal and interest is 3.14% and the lowest variable rate is 1.77% (comparison rate 1.86%) for 60% loan-to-value ratio (LVR), or 1.88% (comparison rate 1.97%) for 80% LVR.
• The average variable interest rate for investors paying principal and interest is 3.48% and the lowest rate is 1.89% (comparison rate 2.28%) for 60% LVR or 1.99% (comparison rate 2.38%) for 80% LVR.

Savings accounts

• 3 providers cut rates on ongoing savings accounts by an average of 0.07 percentage points.
• 14 providers cut rates on bonus accounts (where you have to meet certain conditions each month to earn a higher interest rate) by an average of 0.11 percentage points.
• 5 providers cut rates on promotional accounts (where you receive a higher rate for a limited period of time) by an average of 0.06 percentage points.
• Bonus savings accounts: The maximum rate is 1.35% and the average rate is 0.60%.  A rate of 2.50% is available from: Westpac for 18 to 29-year-olds with a balance of up to $30,000, and BOQ for 14 to 24-year-olds.
• Promotional savings accounts: The maximum rate is 1.35% (available for a four-month period) and the average rate is 0.61%.
• Ongoing savings accounts: The maximum rate is 0.90% and the average rate is 0.19%.

Term deposits

• 12 providers cut 61 rates by an average of 0.15 percentage points.
• 7 providers increased 31 rates by an average of 0.15 percentage points.
• The average 1-year term deposit rate is 0.47% and the maximum rate is 0.80%.

*Survey of 1,094 Australians aged 18+. Commissioned by Canstar and conducted online via Qualtrics in September 2021. The results are rounded to the nearest whole percentage point.