Time to read : 4 Minutes

Mortgage holders around Australia breathed a collective sigh of relief when the Reserve Bank of Australia (RBA) kept the official cash rate on hold last week. 

The cash rate currently sits at 4.35%, and there’ll be no change to this until at least February. The RBA Board doesn’t meet in January, so we should see two months of home loan interest rates holding steady - right?

Right?

Errr…maybe. 

Here’s why:

The cash rate has risen 4.25% since May 2022. This has been announced and the media has been all over it. Most of these interest rate lifts occurred in 2022. We started 2023 with an official cash rate of 3.01%. The increases to the cash rate in 2023 total 1.25% above where they finished in December 2022.

We saw increases in February, March, May and June. Then the RBA paused cash rate hikes for four months.

The major banks, however, don’t have to wait for the RBA to raise rates. They can change their interest rates at any time - and they have: many times.

Out-of-cycle interest rate increases:

The RBA’s extended cash rate hold didn't mean that home loan interest rates stayed the same. In fact, there have been several out-of-cycle rate rises from the major banks this year. At least one lender lifted rates in April, despite the RBA leaving the cash rate on hold that month. 

The same thing happened in July. According to the Australian Financial Review, “Home loan interest rates charged by the major banks to new borrowers are outpacing official cash rate increases.”^

By May of this year, the major banks had increased interest rates for new borrowers by 4.5 times on average, while the RBA only lifted their cash rate three times. 

During the four months from July when the RBA left rates on hold - the banks didn’t. 

Lenders adjusted their home loan offers for both fixed and variable rates. 

• ANZ lifted its Basic Level home loan interest rate by 0.15% in July - without any prompting from the RBA. CBA Extra’s new rate lifted by 1.52% by financial year end - a full 0.52% above the RBA’s cash rate rises over the same period.

• The rest of the Big Four shifted gears similarly with some of their standard home loan products since then: 

• NAB’s moved from 4.99% to 6.24%.

• ANZ’s rose from 4.94% to 6.19%. 

• Westpac’s spiked from 5.14% to 6.39%.

Remember: This was in July, during the rates pause - before the November cash rate hike. Every one of the Big Four lifted rates by a minimum of 1.25% to the RBA’s 1%.

Did interest rates go up in December?

The cash rate didn’t - but there are some signs that some of the banks are lifting interest rates anyway.

Compare Club’s Head of Home Loans Anton Stevenson noted that our own research saw interest rates increase this month - even though the cash rate didn’t. This includes one of CBA’s standard variable home loan rates moving upward by 0.25%*.

Anton says: “The cash rate pause in December gives mortgage holders a two month break. This is an excellent time to find out about refinancing to a better loan.”

The bottom line:

The RBA left the cash rate on hold for December. This doesn’t insulate you from out-of-cycle interest rate hikes by your lender. Nor does it protect you from the shock to your wallet when your fixed interest rate period ends, and you’re faced with their much-hiked revert rate.

The pause between RBA cash rate changes is an opportunity to reevaluate your home loan, and your lender. Speaking to a broker is a good place to start.

*CBA’s standard variable rate shifted from 8.55% to 8.80%. ^Banks Raise Rates Faster than the RBA