Why RBA rate cut hopes won’t help everyone

Australia’s four big banks Commonwealth, Westpac, NAB, ANZ. Picture: NCA Newswire

Borrowers are already banking on a July rate cut that hasn’t happened yet, and experts say that could cost them.

Headline inflation has dropped to 2.1 per cent, while the Reserve Bank’s preferred measure, core inflation, has fallen to 2.4 per cent — placing both back inside the RBA’s official 2-3 per cent target band for the first time in years.

The result has seen two of the big four banks — CBA and NAB — shift their forecasts to tip a cash rate cut as early as July 8, while Westpac and ANZ still expect a move in August.

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But brokers and market watchers warn some Australians are jumping the gun, locking in decisions on the assumption that lower rates, and bigger borrowing power, are guaranteed.

Canstar data shows a 0.25 percentage point RBA cut would reduce monthly repayments on a $600,000 loan by about $90.

A $1m loan would fall by $150 a month, assuming banks pass on the full reduction.

For borrowers with three or four cuts by mid-2026, those savings could rise to $265-$350 per month.

Even a 0.25 percentage point cut could shave up to $150 off monthly mortgage repayments on a $1m loan, according to Canstar.

But Canstar group executive of financial services Sally Tindall said borrowers shouldn’t assume anything just yet.

“Today’s monthly CPI results, while only an indicator, leave the door wide open for the RBA to cut the cash rate in July,” Ms Tindall said.

“The fact that the Board considered the case for a double cut at the last meeting gives us good insight into its thinking and suggests it will almost certainly consider the case for a cut at the next one.”

Ms Tindall said the numbers put the RBA in a strong position, but cautioned against overconfidence.

“Headline inflation is now just a fraction off the bottom of the central bank’s 2 to 3 per cent target band, while core inflation is now under the halfway mark at an annual rate of 2.4 per cent.”

“While the data opens the door to a cut in July, borrowers should not consider it a done deal. The Board could opt to wait for the full quarterly CPI results, which aren’t out until the end of July.”

Canstar Data Insights director Sally Tindall says inflation has re-entered the RBA’s target range, but borrowers shouldn’t assume a rate cut is locked in.

Zippy Financial principal broker Louisa Sanghera said many of her clients were already asking what the cut would mean for them, and in some cases, adjusting their budgets too soon.

“Even a 0.25 percentage point cut can make a big difference, especially when you consider how large the average mortgage is these days,” Ms Sanghera said.

“But people are always dreaming bigger than their budgets. We’ve had clients circling back with ambitious goals, bigger homes, investment properties, and asking if the changing rate environment will get them over the line.”

Zippy Financial’s Louisa Sanghera says clients are circling bigger homes and investment properties on the assumption that cuts are coming.

Ms Sanghera said some borrowers were pausing refinancing or delaying major decisions, waiting for the RBA to make its move.

“There’s a real sense of people sitting on the edge of their seats, ready to jump if rates go down,” she said.

“If the deal stacks up today, go for it. If it’s borderline, then sure, wait and see what the RBA does in July. But I personally don’t think a cut is guaranteed.”

The Zippy Financial principal broker said some banks were already being proactive, repricing loans or negotiating harder with existing customers.

“Most of our clients are able to get their rates repriced just by asking, and we do that regularly for them,” Ms Sanghera said.

Belle Property/Hocking Stuart state director Anthony Webb says even talk of a July rate cut is fuelling new buyer momentum ahead of spring.

Belle Property and Hockingstuart Victoria and Tasmania head Anthony Webb said the mere anticipation of a cut was already shifting buyer behaviour.

“There’s growing optimism, particularly as we head into the second half of the year, that a July cut could help us build toward a more robust and active spring selling season,” Mr Webb said.

Mr Webb said first-home buyers were the most responsive group, particularly those with tight borrowing constraints.

“They’re the most sensitive to changes in borrowing power, and even a small reduction can give them that final push to enter the market,” he said.

“Some people think a small rate drop suddenly means they can afford a much bigger home — but in most cases it gives them a few thousand dollars extra at best.”

Mr Webb said regional areas like Bendigo and Geelong were already heating up, while metro Melbourne remained patchy.

“Bendigo is flying, properties are moving quickly and confidence is high. Geelong is also gaining momentum. Metro is still stop-start,” he said.

Apollo Auctions director Justin Nickerson says buyer behaviour is already shifting, with more turning up ready to bid as confidence builds.

Apollo Auctions director Justin Nickerson said auction behaviour, particularly in Brisbane, had already shifted, even without a confirmed rate cut.

“We’ve seen a mini-surge in buyer activity off the back of previous rate cuts, and I expect we’ll see a similar reaction again,” Mr Nickerson said.

“Back then, buyers were circling properties but hesitating.

“Now, more of them are putting in offers pre-auction or turning up ready to bid on the day.”

Mr Nickerson said that even a small change in sentiment could shift the market quickly.

“It’s not just about confidence, it also boosts borrowing capacity, even if only marginally, which can be enough to nudge someone from interest to action,” he said.

But, the Apollo Auctions director said spring wouldn’t be a repeat of the pandemic-era boom.

“That year was a perfect storm, record-low interest rates, stimulus, low stock levels, and a wave of buyer urgency all hit at once,” Mr Nickerson said.

“I do expect spring to be strong, but not ‘2021 strong.’”

RBA rate speculation is already changing how Australians budget, borrow and buy — but experts warn not to get ahead of the curve. Picture: NCA NewsWire / Roy VanDerVegt

Ms Tindall said borrowers hoping to capitalise on a future cut should act now to understand their position, not after the cut arrives.

“If you’ve got a mortgage, spend the next couple of weeks making sure your interest rate is as low as it can be,” she said.

“That way you’ll be in pole position to benefit from both the RBA’s relief and any extra your bank is willing to hand out.”

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