National

Borrowers breathe sighs of relief following rates pause

By AAP Newswire

Aug 2, 2023

A file photo of the RBA — The Reserve Bank's decision to pause interest rates for a second month was a relief for borrowers. -AAP Image

The Reserve Bank has kept interest rates unchanged for two months in a row, although kept the option up its sleeve to hike again if needed.

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In a move welcomed by stretched borrowers, the central bank kept interest rates steady at 4.1 per cent.

The decision was likely a close one, with the RBA governor's statement keeping in a reference to more tightening if needed.

However, Philip Lowe's comments in his accompanying statement were interpreted as slightly less assertive by many economists, with some entertaining the idea the cash rate has peaked.

For mortgage holders, the possibility of a central bank at, or very near, the end of its hiking cycle will be a relief.

Following the 400 basis points of tightening already, RateCity analysis has the average borrower with a $500,000 mortgage sinking more than $1100 extra into their loan each month compared with what they were paying before interest rates started going up.

The firm's research director, Sally Tindall, said most variable borrowers had not yet paid for rate hike number 12 doled out in June due to the lag time between cash rate movements and money coming out of bank accounts.

Ms Tindall urged borrowers to hunt around for a better deal if they were struggling.

Variable rate mortgage holders should be looking for a rate under 5.75 per cent, with a handful of lesser-known lenders offering rates below 5.5 per cent.

"That's a far cry from what the big four banks are currently offering new customers," Ms Tindall said.

By refinancing to one of the lowest rates, borrowers could save nearly $12,500 over two years rather than sticking with the least competitive option.

The latest lending data, released by the national statistics bureau on Tuesday, showed refinancing rates dipping slightly but remaining elevated as borrowers continue to switch lenders in search of better deals.