When will interest rates go down?

After the last year of interest rate rises, many Australians have been left wondering: when will we finally see an end to recent rate hikes, and when will interest rates finally begin to come back?
Ava Crawford
Written by
Ava Crawford
Imogen Baxter
Reviewed by
Imogen Baxter
Last updated
May 17, 2024
0 minute read
Table of contents
family chatting on garden porch celebrating the cash rate going down

After the last year of interest rate rises, many Australians have been left wondering: when will we finally see an end to recent rate hikes, and when will interest rates finally begin to come back down in Australia?

The cash rate, set by the Reserve Bank of Australia (RBA), is currently sitting at 4.35% — the highest level in 11 years. Since the central bank started rate hikes to influence monetary policy in March 2022, the inflation rate has remained above the RBA’s 2%-3% target, and the cost of living has continued to increase.

The ongoing impacts of the COVID-19 pandemic have had a ripple effect on all aspects of the Australian economy. The two years that have followed have seen unprecedented changes.

Higher interest rates have saddled many borrowers with increased repayments on their home loans, with the prospect of further rate increases making many question how many rate rises they can afford to factor into their monthly repayments. Rate hikes paired with high inflation and a competitive housing market have put a strain on the financial situation of many homeowners, as well as created additional barriers to entry for first-home buyers. Mortgage holders coming off of fixed-rate mortgages could face dramatic changes to their loan repayments.

What every Aussie wants to know is: when can we expect lower rates?

Can you afford mortgage repayments but not the deposit? Learn more about a deposit boost loan.
Check your eligibility
Right arrow

Have we reached the peak of interest rates?

General consensus amongst Australian economists is that while interest rate rises have slowed down, we have not yet reached the peak, and there are still more increases to come. The main points up for discussion are what that peak will be and when we will hit it.

Based on an analysis of statements from RBA governor Philip Lowe regarding the board's decisions, chief economists at each of the big banks have their own predictions for how interest rates will move over the next year and beyond. These factor in current labour market levels, inflation rates, and historical interest rate changes.

In April 2024, the cash rate sits at 4.35%. Though inflation rates are declining, they remain higher than targeted by the central banks. Unemployment also remains near a record-low rate.

Predictions from the big banks in October 2023 suggested that we could see rates fall by March 2024. The Big Four predictions were as follows:

  • Commonwealth Bank: Economists at CBA are currently predicting that this is the end of this series of rate hikes.
  • Westpac: Westpac economists predict that we have seen the last of rate rises for the near future.
  • NAB: Predictions from the economists at NAB are that Australians still have another increase before rates steady.
  • ANZ: ANZ has reverted back to their original prediction of a long-term hold at 4.10%.

Only NAB was correct in predicting a further rate hike, which came in November 2023, moving the cash rate from 4.10% to 4.35%

When can Australians expect rate cuts, and how low will rates go?

The RBA released a Statement on Monetary Policy n February 2024 which indicated that the RBA is forecasting holding the cash rate at 4.35% until the middle of 2024, targeting a return to 3.2% by the middle of 2026.

This is similar longterm to the predictions of the big banks from October 2023.

Most of the major banks anticipate rate cuts early in 2024, though some anticipate this might be a longer process. This could be a lowering of rates to indicate easing inflation and a softening real estate market. It could also be, in the case of consistent negative economic growth, indicative of a recession.

Big Four bank predictions are as follows:

  • Commonwealth Bank: The CBA economists predict rate cuts in the first quarter of 2024, closing out the year at 3.10%. That’s a drop of 1.25 percentage points from their predicted peak.
  • Westpac: The current prediction from Westpac’s chief economist, Bill Evans, is that after hitting a 4.60% peak in September, rates will hold until roughly May 2024. After that, they are vague about rate cuts but expect a gradual drop in interest rates over the two years following.
  • NAB: NAB predicts that after September 2023, rates will hold until roughly June 2024. They expect to see the year close out with the cash rate at 3.10%, a 1.5 percentage point drop from an anticipated 4.60% peak.
  • ANZ: ANZ are more conservative in their predictions, cautioning that we may not see rate cuts until November 2024. This would mean ending 2024 with the cash rate still above 4%.

How can I keep down my home loan repayments?

While rates continue upward, home loan repayments will head in the same direction — especially for those on variable-rate home loans — and it’s essential to have a strategy to cope with rising loan rates.

For those who find the rising rates are making their loan repayments hard to keep up with, there may be merit in seeking financial advice around refinancing. While looking to refinance is a significant step, it could potentially get you a lower rate on your home loan. Remember to check the eligibility requirements around refinancing, which may put restrictions on the refinance loan amount or loan-to-value ratio (LVR).

If you have come from a fixed-rate mortgage to a significantly higher rate, you may also be able to negotiate a lower rate with your lender by contacting them. This may also be possible with some variable rates that have risen along with recent rate hikes.

FAQs

How much are interest rates in Australia?

Home loan repayments in Australia vary largely based on the property value, the details of the home loan (like the interest rate and loan term), and the size of the home loan deposit.

Before you commit to a home loan, it’s important to assess your financial situation to make sure the repayments are in your price range. This is especially important as interest rates can fluctuate and you’ll need to be able to make your repayments even if they increase.

Depending on the home loan term, whether you make additional repayments, if you refinance at any point, you’ll be able to plug your mortgage into a repayments calculator to work out what your individual home loan repayments will be.

If you are on a fixed rate home loan, your interest rate will be set for a pre-determined time (usually between one and five years). On a variable rate home loan, the interest rate on your home loan will follow reserve bank movements.

Like with many loans, often introductory offers do apply. Make sure to check the comparison rate for a realistic look at the interest rate you’ll be paying on your home loan.

Do interest rate rises affect my ability to refinance?

Interest rate rises don't directly affect one's eligibility to refinance. 

What lenders look for when approving refinancing applications are things like the value of the property, your current financial position, and your credit score.  

If the value of the property has decreased or if you've got a low credit score, it might be more difficult for you to get approval. 

They'll also want to see that you've got a steady income and a history of making timely payments. 

Share
Disclaimer
This article is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation, or needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS), or other offer documents before making an investment decision in relation to a financial product (including a decision about whether to acquire or continue to hold).
Prepared by OwnHome Services Pty Ltd ACN 664 492 059. This information does not take your personal objectives, circumstances or needs into account. Always read the disclosure documents for products and services before deciding on a product or service, and consider seeking independent legal, financial, taxation or other advice for your unique circumstances.
References

Latest articles

Start your pathway to homeownership
Make yourself at home! Log in and track your process. Or create an account in minutes and join thousands of Aussies already using OwnHome.