How are brokers navigating an uncertain interest rate environment?

While the Reserve Bank of Australia (RBA) held the official cash rate at 4.35 per cent, the board’s official stance is still one of uncertainty.

Although it’s believed that the peak of interest rates has come to fruition, RBA governor Michele Bullock’s comments following the March monetary policy decision suggested that the board is undecided on whether or not it will move the cash rate over the coming months.

Thus, mortgage brokers have highlighted the ways they can ensure their clients are at ease and what they believe the future holds for the cash rate and how that may affect borrower behaviour.

Speaking to The Adviser on the matter, branch principal and mortgage broker at Yellow Brick Road Earlwood, Effie Nicol, said that while the cash rate’s future is unpredictable, she intends to “continue to be proactive and ensure my client care calls and reviews are prioritised”.

“It is important to keep clients informed and up to date with market trends to ensure they’re on track with their financial goals. This will enable them to make more informed decisions about their future,” Nicol said.

Additionally, Peter Savage, founder and chief executive of Savage Money, said he’s found that his clients are “more optimistic” due to the fact that interest rate rises have been “conservative” and that they’re still able to invest in the property market.

However, Savage noted that a further increase would create a major pain point for his clients.

On the potential moves in the cash rate, Nicol stated: “I anticipate that there will likely be more holds rather than hikes in interest rates over the coming months.

“Given the current economic climate, it seems prudent to focus on managing inflation rather than increasing rates. Any unpredictable changes may destabilise the situation we need to allow time for economic stabilisation.”

Meanwhile, Savage told The Adviser that another rate rise likely “wouldn’t do much” as he’s observed “more investment in real estate, business and luxury car purchasing than ever”.

Savage did note that another rate increase would only “squeeze the little guys” in the rental and first home buyer market.

Commenting on the implications that the RBA and Bullock’s uncertainty may have on the lending market, Nicol said Bullock and the RBA “can have a profound influence on borrowers making decisions”.

“Based on my experience, when rates increase potential borrowers are hesitant in entering the market and seeking loans until they perceive a sense of confidence,” Nicol said.

Savage stated on the matter that he believes the “eye is on lender’s policy and the Australian Prudential Regulation Authority (APRA)” at this point in time.

“That is a lever that could be better controlled. I think they need to loosen the grip a little,” he said.

“We don’t know”: Bullock

As previously mentioned, Bullock and the RBA’s post-meeting statements left an atmosphere of uncertainty in terms of where interest rates are heading.

When asked about whether or not the board has adopted a neutral bias, Bullock reiterated that the board cannot “rule in or out” any further changes.

“We’re uncertain, we don’t know,” Bullock said.

At this point in time, the RBA is responding to data as it emerges, Bullock explained, and that there are “risks on both sides of this and the risks are finely balanced”.

Written by Adrian Suljanovic

Last Updated: 20 March 2024

Published: 21 March 2024