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Rate Rollercoaster: Unveiling Australia’s Home Loan Future in 2023 and Beyond! Experts Predictions Revealed

Navigating the Ups and Downs of Interest Rates in the Australian Housing Market
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Welcome to our comprehensive exploration of Australia’s dynamic home loan market. As we traverse the rollercoaster of rates, we’re guided by the Reserve Bank of Australia’s (RBA) efforts to combat inflation. This blog post will dissect expert predictions from the country’s top four banks – Westpac, NAB, ANZ, and CommBank – and discuss the potential for rate hikes, cuts, and their potential effects on the housing market in 2023 and beyond. Read on to learn more, or watch the video below:

Table of Contents

The Current State of Australia's Home Loan Market

In the past year, the home loan market in Australia has seen rate hikes, a strategy implemented by the RBA to control inflation. However, experts from the four major banks hold varying opinions on the future of interest rates. Some anticipate a continued rise, while others suggest a potential decrease.

The RBA has expressed a tightening bias but has softened its language over time. This shift suggests that rate cuts may be imminent as the economy recovers from disruptive influences. However, the predictions remain divided, creating a captivating debate on the future of Australia’s home loan market.

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Predictions and Debates: The Future of Australia's Home Loan Rates

All four major banks accurately predicted the first two rate hikes in February and March. However, their opinions diverged leading up to the April rate pause and the surprising May rate hike. The current debate revolves around whether the cash rate has peaked at 3.85% or if there will be another hike this year, potentially reaching a peak of 4.10%.

Inflation remains a significant concern for the RBA, despite slowing down from previous months. RBA governor Philip Lowe has stated that additional rate hikes may be necessary to control inflation using monetary policy and the cash rate. The pace and extent of future hikes will depend on conflicting economic indicators, including spending, property prices, and overseas market conditions.

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The Impact of Mortgage Stress on Australia's Housing Market

As the tightening cycle progresses, mortgage stress continues to impact the housing market. Borrowers are eagerly awaiting stability or rate reductions. This situation underscores the importance of understanding the factors influencing the home loan market and the potential outcomes of the RBA’s decisions.

Financial stress test

The Possibility of a Recession: How It Could Affect Australia's Home Loan Rates

n the event of a recession, the RBA may choose to cut the cash rate to stimulate the economy and alleviate the burden on mortgage holders. While there is no certainty of an economic downturn, the risk remains, especially since inflation has been driven more by supply-side disruptions than consumer demand.

However, with strong employment, relatively high consumer spending, and the calming of global disruptions, the risks of a recession appear low at present. The banks estimate that inflationary pressures will ease off by late 2023 or early 2024, potentially leading the RBA to relax its grip on the cash rate and implement rate cuts.

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Predictions for Rate Cuts: Relief for Australian Borrowers?

CBA predicts cash rate cuts starting in the last quarter of 2023, while Westpac anticipates easing in 2024, providing some relief for borrowers. These predictions offer a glimmer of hope for those struggling with mortgage stress and looking forward to a more stable and manageable home loan market.

Expert Opinions: What Do Industry Leaders Predict for Australia's Home Loan Rates?

Mark Crosby, an applied macroeconomist and the Director of the Bachelor of International Business at Monash Business School, believes that interest rates will not start falling before 2024. He points out that rates are currently at historically low levels and have a long wayBAN: to go before returning to a more normal range. He states that the Reserve Bank of Australia (RBA) would only cut rates if inflation falls to the low end of the RBA’s target range or if there is a recession. While there is a global risk of a recession, Crosby hopes that the RBA will not cut rates in 2023 unless there is bad economic news.

Leanne Pilkington, CEO of real estate group Laing+Simmons and Deputy President of the Real Estate Institute of Australia, suggests that a downward correction in interest rates may not happen until mid-2024. She acknowledges that the recent rate increases have had a significant impact on the economy and housing affordability. Many mortgage holders are facing higher repayments, and there is a concern about the rental shortage. Pilkington believes that the best-case scenario for interest rates trending back down is mid-2024, as long as inflation remains under control.

Tina Teng, a Markets Analyst for CMC Markets APAC & Canada, expects the RBA to continue raising rates in the near term due to sticky inflation, a tight labor market, and economic development. However, she anticipates that the RBA may start a rate-cut cycle in early 2024. Teng mentions that global factors, such as the potential crisis in US regional banks and China’s reopening progress, could influence the RBA’s decision.

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Conclusion: Key Takeaways on Australia's Home Loan Rates in 2023

There is a divergence of opinions among experts regarding the timing of interest rate cuts. Mark Crosby, an applied macroeconomist, believes it won’t happen before 2024. Leanne Pilkington, a real estate veteran, suggests mid-2024, and Tina Teng, a market analyst, expects early 2024.

These predictions reflect the complexities of Australia’s home loan market and the various factors that influence it. Inflation, economic indicators, and global events will play a significant role in the RBA’s decision-making process.

In the midst of rate hikes, potential cuts, and the shadow of recession, understanding these possibilities is crucial for anticipating the future of Australia’s housing market. As we’ve seen, the current cash rate rests at 3.85%, but predictions for future rate cuts provide some relief for borrowers.

However, the impact of mortgage stress continues to be a concern as rates tighten. The possibility of a recession also adds another layer of uncertainty. Despite these challenges, the low current risk of a recession due to strong employment and high consumer spending offers some optimism.

In summary, navigating Australia’s home loan market in 2023 and beyond requires a keen understanding of these factors and trends. Stay informed and prepared as we continue to experience the rate rollercoaster in Australia’s home loan future.

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Approximately 40% of home loan applications were rejected in December 2018 based on a survey of 52,000 households completed by 'DigitalFinance Analytics DFA'. In 2017 to 2018 Hunter Galloway submitted 342 home loan applications and had 8 applications rejected, giving a 2.33% rejection rate.
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