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Interest rates are dropping – here’s what happens next

ByAndrew Mirams

No sooner had the Reserve Bank cut the official cash rate for the first time in years the pundits began asking when the next reduction might be.

And there’s good reason to wonder. There’s a fair bit of uncertainty in the world – and our economy – and so the question of what happens from here is a bit of a tricky one to answer.

Here’s what we know, and a few things you should keep in mind.

Inflation continues to slow

The latest data from the Australian Bureau of Statistics is hot off the press and it’s pretty good news.

Headline inflation fell to 2.4 per cent in the year to February. On top of that, two other measures also read well – CPI excluding volatile items lowered to 2.7 per cent and trimmed mean, which is the RBA’s preferred measure, also dropped to 2.7 per cent.

If you’re not an economics person, all you need to know is that the RBA board wants inflation to be between two and three per cent to feel comfortable. We’re well within that crucial range now, so they’ll be breathing a sigh of relief.

And those numbers were better than many boffins were expecting, so more good news.

The world is a bit of a mess

Australia’s economy is facing some headwinds, with wages growth flat and unemployment looking like it’s about to tick upwards. 

The global economy is even more challenging, driven in large part by US President Donald Trump. America is initiating a trade war with everyone, slapping tariffs on multiple countries’ major export markets – and Australia earned a special mention during his recent announcements. And who knows what he will do in the near future.

That’s left markets reeling. If you own shares, you’ll know how wild things have been lately and the RBA is keenly aware of this. It has many economists predicting another rate cut is sooner rather than later.

When will the cut come

Up until President Trump’s announcement, most economists were tipping the next cut to be in May. It now seems to be a matter of how big the cut might be? Will another 0.25% and slow and steady win the race OR will these world events and the data point to a bigger 0.50% cut that would really help our markets and the average home loan borrower more quickly.

But from there, most financial experts think there’s a strong chance of a full cut in June, and potentially one or two more in the backend of 2025.

For their part, the big banks are also confident of a reduction sooner rather than later.

Westpac, NAB and CBA all tip a rate cut before the end of the second quarter, which is June, assuming they share the view that the RBA won’t budge during an election campaign.

ANZ is a bit more conservative and thinks the next cut will be some time in the third quarter of the year.

What does this mean for you?

For what it’s worth, I think it’s a good time to buy. Forget all the bluster of the economy and share markets and politics.

If you’re in a good financial position, there are some intriguing opportunities in the market – and from a mortgage perspective, it’s more favourable than it has been in a long time, and it’s only going to get better and better.

But if you’re not quite there, my simple advice is to get ready. As rates continue falling, confidence will rise among would-be buyers and demand for property will spike once more. The supply and demand scales will tip once more, which means price growth pressure.

Clear your bad debts, especially credit cards. Kick your buy now, pay later habit and pay off and close any of those accounts you’ve got open. Save as much money as you can and do it consistently, to show a future lender that you’ve got good financial habits.

And talk to a mortgage adviser about your options, what’s possible, and the important steps you can take now to make it quick, simple and hassle-free to buy when you’re ready.

If you’re a first homebuyer, it’s understandable you might be nervous watching all this uncertainty play out. You might be tempted to sit on your hands until things cool down. But you could be missing out.

And you’re probably closer to being able to actually purchase than you might think.

The elusive $600,000 mark

There’s a general view among many first-time buyers that the ideal amount they could or should borrow to purchase a home is around the $600,000 mark.

It’s an elusive figure that high rates have made even harder to reach in terms of serviceability. On top of that, rising home prices have seen the pool of potential properties dwindle.

But things have changed.

Obviously, rates have come down, so borrowing power has risen. The cost of borrowing has improved and it’s a good time to consider your situation. Also, the grants and schemes on offer make it worthwhile exploring your options.

Property markets have also shifted. Demand is off the boil and supply has lifted, so there’s less competition, more to choose from, and a bit more bargaining power in buyers’ favour.

Another common view is that first-timers need a huge amount of money saved in order to fund a deposit. That might be true if you want a multi-million dollar home in the inner suburbs, but those shopping within their means and who have realistic expectations don’t need to have squirreled away a fortune.

If that elusive $600,000 mark is what you’re considering, and you’ve got at least $30,000 available to go towards it, we can help. Many first homebuyers don’t realise what’s possible until they discuss their situation with and experienced, independent mortgage broker.

Andrew Mirams
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