Broker Notes #27: RBA Lifts Rates to 4.85% as Home Values Fall for a Seventh Month

RBA Raises the Cash Rate to 4.85% on a Split 6-3 Vote

The RBA’s Monetary Policy Board voted six to three to raise the cash rate target by 25 basis points to 4.85%, with three members preferring to hold at 4.60% [RBA]. The Board said inflation is “broadly based” and now forecast to stay elevated through much of 2027, not reaching the top of the 2-3% target band until late 2027. That is around three quarters later than the RBA expected in August.

The statement also acknowledged the cost of tightening. “The economy is slowing, housing prices have fallen significantly and the unemployment rate has risen,” the Board wrote, adding that higher fuel prices linked to the Middle East conflict are feeding into other goods and services. Since January the cash rate has risen from 3.60% to 4.85%, a cumulative 1.25 percentage points.

Cotality calculates that five rises this year have lifted repayments on an average owner-occupier mortgage of almost $742,000 by around $600 a month, or 14%, compared with January [Cotality]. Borrowing capacity for a median-income household is about $88,000, or 12%, lower than at the start of the year, because lenders test every application at the new rate plus a serviceability buffer of at least 3 percentage points.

How Much Will the November Rate Rise Add to Mortgage Repayments?

The MFAA estimates a full 0.25 percentage point pass-on adds about $119 a month to a $731,000 loan, the national average new owner-occupier loan in the June quarter [MFAA]. NSW borrowers carry the largest average loans at $842,000, so the increase there is about $138 a month. The estimates assume a 30-year principal and interest loan moving from 6.24% to 6.49%, and each household’s figure will depend on its own balance, rate and remaining term.

Lenders are applying the rise on different dates. Teachers Mutual Bank lifts variable rates on 12 November and Macquarie on 19 November, while Canstar expects the big four banks to move on 13 November [Australian Broker]. Canstar also estimates an owner-occupier who has not renegotiated in five years could soon be paying around 7.34%, against competitive new-customer rates expected to stay below 6.5%.

That gap between existing and new-customer pricing is often the part of the loan a borrower can influence most. A repricing request to the current lender, or refinancing, may narrow it, although each rise also tightens the serviceability test a new lender applies, and switching costs need to be weighed against the saving.

Will the RBA Raise Rates Again in December?

All four major banks now expect the RBA to hold at 4.85% on 8 December [Broker Daily]. Economists pointed to the three dissents and to the Board dropping September’s wording about “increasing the cash rate target further if needed”. Governor Michele Bullock also said after the meeting that five rises in, it was probably a good time to “take stock”.

A forecast hold still leaves the door open. ANZ’s Adam Boyton flagged a risk of a December or February rise if inflation expectations keep climbing, and Westpac’s Luci Ellis sees February as the next most likely timing should another increase eventuate. CBA expects the RBA to stay on hold through most of 2027 before two cuts late in the year take the cash rate to 4.35%.

Forecasts like these shift with each data release, and nobody can call the rate path with certainty. Borrowers weighing a fixed rate against variable are effectively deciding how much repayment movement their budget can absorb, and the trade-offs differ for every household. The next markers are the September quarter national accounts and October CPI on 25 November.

Home Values Fall for a Seventh Straight Month as Clearance Rates Slide

Cotality’s Home Value Index fell 1.2% nationally in October, the seventh consecutive monthly decline, leaving values 6.7% (about $63,400) below the March peak [Broker Daily]. Brisbane recorded the sharpest monthly fall at 2.0%, followed by Perth at 1.7% and Sydney at 1.6%. Across the combined capitals, Cotality estimates values are now 8.1% below their March peaks and sales volumes over the three months to October were almost 26% lower than a year earlier.

Auction results point the same way. The combined capitals preliminary clearance rate fell to 47.2% across 1,735 auctions in the week to 1 November, the lowest preliminary result since April 2020 [Cotality]. Brisbane cleared just 26.2%, its fourth result below 30% in five weeks, while Sydney rose to 53.8%.

CBA has widened its forecast to a 14% national peak-to-trough fall, from 9%, with Brisbane and Perth both tipped to fall about 18% [Australian Broker]. Falling prices and more listings give buyers more room to negotiate, while the same week’s rate rise reduces what they can borrow. Property has tended to grow over long periods, with no guarantee, and for buyers the more useful question is usually whether the repayments hold up at today’s rate plus a buffer.

Mortgage Arrears Tick Up as Default Risk Hits a Record

APRA told a Senate committee this week that home loans in default reached 1.01% in June, up from 0.99% in March, with deputy chair Therese McCarthy Hockey saying arrears are “ticking up” [The Adviser]. Chair John Lonsdale said APRA is watching the jobs market closely, with unemployment at 4.7% in September. Arrears on bank low-doc loans, which cater to borrowers such as sole traders who cannot supply standard income paperwork, reached 4.9% in the June quarter, up from 4.2% a year earlier.

Separate analysis from OurTop10 estimates a record 24,546 households were at risk of mortgage default in the September quarter, up 24% on a year earlier, with South Australia deteriorating fastest [Australian Broker]. Lonsdale noted that stressed borrowers are contacting their banks earlier than in past cycles, and that repayment plans are being worked through before loans fall behind.

Borrowers do not need to miss a repayment before speaking with their lender about hardship options. Those options can include a temporary repayment change or a longer loan term, and each carries its own cost over the life of the loan, so a qualified financial professional is best placed to assess what suits an individual situation.

First Home Buyers Move to Higher LVRs as the 5% Deposit Scheme Grows

Another major-bank brand joined the 5% Deposit Scheme panel this week, taking the number of participating lenders to 57 [Broker Daily]. The scheme lets eligible first home buyers purchase with a 5% deposit without paying lenders mortgage insurance, because the government guarantees part of the loan. In NSW, Finance Minister Courtney Houssos told brokers more than 94,000 first home buyers had received an average of about $20,000 in state support since July 2023 [Broker Daily].

APRA is watching the result. Lonsdale told the Senate more first home buyers are borrowing at 90% and 95% loan-to-value ratios, meaning the loan makes up 90% or 95% of the property’s value. A smaller deposit gets a buyer into the market sooner, though it leaves less equity buffer if values keep falling, and eligibility for each scheme varies by income, price cap and location.