The Reserve Bank of Australia has held the official cash rate at the historic low of 0.1%, maintaining jobs and inflation remain the priority.

The RBA maintains interest rates will remain on hold until 2024 at the earliest. Picture: Getty.

RBA governor Philip Lowe acknowledged the impact low interest rates are having on the housing market but said the central bank would not lift rates until actual inflation is sustainably within its 2-3% target range.

“The Board is committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia and inflation consistent with the target,” Mr Lowe said in a statement.

“This is unlikely to be until 2024 at the earliest,” he said.

Historically low borrowing costs have seen new loan commitments surge in recent months, as buyers rush to get into the hot housing market.

REA Group director of economic research Cameron Kusher said the prospect of low interest rates for years to come has been a major driver of property prices.

“It’s a very big factor because people still can’t spend money how they would like to with, for example, international borders shut,” Mr Kusher said.

“The low borrowing costs and the likelihood of those low costs for a number of years means that buyers have some comfort and it has undoubtedly contributed to the strong demand for homes and the subsequent price increases.”

The stronger than anticipated economic recovery has raised speculation over whether the RBA will need to lift rates sooner than expected, but currently, inflation and wages growth remain well below target.

“The jobs market is still a long way from full employment, wages growth at 1.5% is way below the 3% plus pace necessary to sustain 2–3% inflation, and in any case inflation is still well below its target zone,” AMP Capital chief economist Shane Oliver said.

“So, a rate hike remains some time off,” he added.

Longer term fixed mortgage rates rising

While the official cash rate remains on hold for now, a growing number of lenders have moved to increase their longer-term, four- and five-year fixed rate mortgages amid expectations the RBA may begin raising the official cash rate from 2024.

Comparison site RateCity said there are no longer any four-year fixed home loan rates under 2% available in Australia on its site.

At the start of the year, it said there were 32 four-year fixed rates under 2%.

Borrowers can still find a number of shorter-term one- to three-year fixed rates under 2%.

“There is certainly some upwards pressure on the cost of funds for banks. In particular, the bond yield on four-, five- and 10-year fixed rates is picking up, which is putting pressure on lenders to increase these longer-term rates,” Smartline CEO Sam Boer said.

“As this trend strengthens, and the pressure mounts, we could see more lenders increase these rates and by a greater margin,” he said.

Housing credit rising

Data released on Monday by the RBA showed credit for housing rose 0.5% in April to be 4.4% higher than the same month a year ago, as the value of loan commitments surged in recent months.

The RBA said housing credit grew by 4.4% in the year to April, up from 3.2% this time a year ago. Picture: Getty.

Credit growth calculates the change in home loan balances, which is influenced by both the amount households borrow, and how much is being repaid.

“Housing credit growth has picked up, with strong demand from owner-occupiers, especially first-home buyers. There has also been increased borrowing by investors,” said Mr Lowe after Tuesday’s board meeting.

Owner-occupier housing credit rose by 0.6% to be 6.2% higher than April 2020.

Investor credit increased at the fastest monthly pace in four years, rising 0.4% to 1.1% annually.

“New lending has risen quickly for both groups in recent months. However for February and March investors have outpaced owner‑occupiers,” CBA economist Belinda Allen said.

As the chair of Australia’s Council of Financial Regulators, the RBA doesn’t target house prices, but rather lending standards. In March, the group warned financial regulators are prepared to clamp down on lending conditions if standards deteriorate and borrowers begin taking on debt they can’t afford.

“Given the environment of rising housing prices and low interest rates, the Bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained,” Mr Lowe reiterated on Tuesday.

In the past, the banking regulator APRA introduced limits on investor loans as well as the proportion of interest-only lending.

But Ms Allan said the level of investor and interest-only loans still remain well below that of the 2015 housing boom, when regulations were last put in place.

Official lending data from the Australian bureau of statistics, to be released Friday, will provide a more detailed picture of the value loan commitments during April.

Should I fix my mortgage?

There are a lot of important considerations to take into account when deciding whether to fix your mortgage rate.

Fixed-rate mortgages allow more certainty around knowing exactly what your repayments will be but don’t allow you to make additional repayments during the fixed-rate term like a variable rate loan.

“Borrowers need to speak to their broker now,” said Mr Boer.

“If a longer-term fixed rate is the right choice – and of course, it depends on a borrower’s circumstances and longer-term plans – then now is a sensible time to lock one in. You could be looking at an opportunity to make substantial savings.

“However, I would certainly recommend talking to your financial adviser as well, so you don’t wind up in a commitment you regret,” he said.

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DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.