Cash rate to surpass 4% in next year: survey

Joust confirmed to The Adviser that that survey was sent out to 1500 brokers.

The new Joust marketplace survey asked brokers a range of questions regarding potential cash rate rises both for November and over the next 12 months, the company explained.

It also asked them where they believe the biggest flow-on effects will occur - and how recent rate rises have impacted their broker businesses.

While the majority of brokers (87.5 per cent) are predicting the Reserve Bank of Australia (RBA) to raise the cash rate once again on Tuesday (1 November), there was less consensus around how high the rate will be over the next year, the Joust survey revealed.

Notably it found that 50 per cent suggested that the cash rate will rise to 4 per cent or more over the next 12 months.

Other notable takeaways from the data included most brokers encouraging borrowers to focus on “wise spending” and to borrow with “a bigger buffer than what a bank servicing calculator may allow.”

The recommendations come after the survey revealed mortgage brokers in Australia believe that rising interest rates will impact consumer spending habits more significantly than mortgage repayments and property costs - while the majority is confident the Reserve Bank of Australia (RBA) will again raise the cash rate in November.

Increasing inflation the rising-rate curveball

With annual inflation reaching 7.3 per cent last week - its highest level since 1990 – 100 per cent of brokers surveyed agreed that spending habits would continue to change significantly over the coming months.

The majority (75 per cent) also believed that mortgage repayments will continue to be significantly impacted, Joust explained.

Less brokers (12.5 per cent) believed that the biggest changes would be seen in personal incomes and property investments, while one in four respondents suggested general property costs would see big flow-on impacts from future rate rises, Joust added.

Rate changes changing broker business

The survey also asked brokers to describe the impact of recent rate changes on their businesses, it highlighted.

Interestingly, the general sentiment was that customers are more nervous and that brokers have seen a reduced number of home buyer enquiries, in favour of an increase in borrowers looking to refinance. 

Joust CEO Carl Hammerschmidt said: “This month we wanted to get a sense check from our broker partners on their expectations for how the rising cash rate would impact the average consumer.

“Perhaps unsurprisingly, given the manner in which Aussies are battling against rising living costs, spending habits for consumers was the only area that all our brokers agreed we’d continue to see big changes in the coming months.

“What’s interesting is that there are still a range of opinions on how high rates will go over the next year.

“We found there to be an even split of those who believe rates jump by at least 4 per cent and those who think it won’t go up by more than … 3.5 per cent.

“I wholeheartedly agree with the key sentiment coming out of the survey, with most brokers encouraging borrowers to focus on wise spending and to borrow with a bigger buffer than what a bank servicing calculator may allow,” Mr Hammerschmidt said.

What the banks said about rates

Six consecutive Reserve Bank of Australia (RBA) cash rate hikes have underlined the expected trajectory of inflation, with the amount of each increase up for conjecture each month since May – which was the first 25 basis-points jump.

Since June, July, August and September the RBA has delivered 50-bp hikes, with economists taken largely by surprise last month when the central bank slowed the rate of increase to 0.25 per cent for October.

This lower increment is largely expected to continue for November, sundry bank and financial institutions' economists had sounded; however, recent unexpectedly high inflation figures have possibly brought a return to a 50bps increase being announced on Tuesday.

Only last week (26 October) the Australian Bureau of Statistics (ABS) confirmed a 1.8 per cent rise in Consumer Price Index (CPI) during the September quarter, increasing annual growth to 7.3 per cent — the highest since 1990.

At the time of print, three of the big four banks - Commonwealth Bank Australia (CBA), National Australia Bank (NAB), and Australia and New Zealand Bank Group (ANZ) – had all largely anticipated two 25 basis-point hikes at the RBA’s next two upcoming meetings for 2022 – but a 50bps jump has since solidified in probability given Australia’s inflation woes.

According to the CBA, the RBA will deliver one or two more 25 bp rate hikes before pausing for an extended period.

It wasn’t a conclusive estimate by any means, however, as the bank acknowledged: “We expect the RBA to raise the cash rate by 25bp to 2.85 per cent at the November meeting.

“However following last week’s upside inflation surprise there is a non a “non-trivial risk” that the RBA could opt for a larger 50 bp hike.

“Ahead of the October board meeting we had ascribed a 60 per cent chance to a 25 bp hike and a 40 per cent chance to a 50 bp hike,” CBA said last week.

Notably, Westpac has made the call that rates would rise to 3.1 per cent this week.

[Related: ‘Rate shock’ spikes borrower concerns]