Will interest rates rise?

An interest rate hike by the Reserve Bank in the not-to-distant future seems inevitable, given that over the past six years, the official cash rate has been falling – from 4.75 percent in November 2011, to the record low 1.5 per cent it sits at today.


ANZ are predicting two interest rate rises from the RBA in 2018. In fact, 3 of the 4 big banks are forecasting official rate hikes next year, according to ABC news:



RBA call for 2018

Cash rate forecast at end of 2018

ANZ

Two 0.25% rises next year

2%

NAB

Two 0.25% rises in August and November

2%

CBA

One 0.25% rise in the fourth quarter

1.75%

Westpac

No change

1.5%


Among the factors that could push rates up is the news from the Australian Bureau of Statistics that the number of people in full-time employment is on the increase, and wages are also on the rise. This increase in household income and job security could stimulate consumer spending and inflation, and spur the RBA to raise rates.


How much the RBA may lift rates by is another question altogether – and one that could be influenced by the fact that even a small rate rise could send homeowners in the eastern capitals into severe mortgage stress.


The experts are in disagreement as to whether or not an official rate rise is on the cards, and if so, when it will occur.

In addition to the banks mentioned above, economists are weighing in with mixed predictions.


Economists at UBS predict that the RBA will leave rates as they are until the latter half of next year, and speculate that when this occurs, rising repayments will lead to spending cuts and property sell-offs, due to financial stress.


In contrast, last month the Shadow Reserve Bank board (a group at the Australian National University made up of expert economists) revealed there was a 73 per cent chance that rates would increase within the next six months. The nine members of the board were in agreement that a rate rise was likely before mid-2018.


How high will rates go?


Everyone in the industry, from mortgage brokers to economists to real estate agents, is expecting rates to increase at some point.

Economists David Plank and Felicity Emmett, from ANZ, believe that following their predicted two rate rises next year, rates will remain unchanged until 2020. They point to high levels of debt among mortgage holders as a key factor that could curtail consumer spending, should interest rates rise too rapidly.


While their counterparts at NAB agree that there will be two rate rises of 0.25 percentage points each in 2018, they also believe rates will increase by a further 0.5% in 2019.


However, Westpac’s chief economist Bill Evans has a prediction that mortgage-holders will favour: he has suggested that the RBA could leave rates unchanged until as late as 2020, pointing to stagnant wage growth and a slowdown in the housing market as reasons why a rate rise would be unnecessary.


What does this mean for homeowners and investors?


Should you lock in a great rate while you have the chance?


While nothing is ever certain when it comes to interest rates, the banks have made it apparent that they have no qualms changing the rules of the game by lifting their variable mortgage rates out of step with the RBA.


So, whether the official cash rate goes up or not, there’s still a chance the rate on your loans could increase if the bank so desires. If you have the opportunity to fix your mortgage at an interest rate beginning with a 3, now is probably a good time to seize that opportunity!




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