Aussie Home Loans founder John Symond surprised at Reserve Bank of Australia’s May rate rise

By William On May 3, 2023

Aussie Home Loans founder John Symond has admitted he was surprised by the Reserve Bank’s decision to raise interest rates as inflation eases.

The RBA cash rate rose a quarter of a percentage point on Tuesday to an 11-year high of 3.85 percent.

“All I can say is I’m surprised,” he told the Daily Mail Australia on Wednesday.

More than two-thirds of mortgages have variable interest rates that respond immediately to Reserve Bank rate hikes.

Mr Symond said this meant the RBA could afford to wait to raise interest rates again.

“My belief is that interest rates in Australia are so much more geared towards the average worker because we have a high home ownership rate, which means our mortgages will be hit quite a bit straight away by these increases,” he said.

Aussie Home Loans founder John Symond (pictured with his wife Amber) has admitted he was surprised by the Reserve Bank’s decision to raise interest rates as inflation eases

Inflation in the year to March eased to 7 percent, down from the 32-year high of 7.8 percent in December.

“I’m surprised they paid that extra quarter,” Mr. Symond said.

“I thought they would have waited three or four months.”

Treasurer Jim Chalmers also admitted to being surprised by the latest rate hike.

“I try not to get into the habit of guessing decisions from the independent Reserve Bank, but the market was certainly surprised by it,” he told ABC News Breakfast.

‘The market usually has a reasonable grip on this and yesterday they were surprised.’

Money markets had priced a rate hike in May as a 12 percent probability, while the 30-day interbank futures market predicted a peak of 3.6 percent RBA cash rate.

Of the Big Four banks, only the Commonwealth Bank expected an increase in May, with inflation still well above the RBA target of 2 to 3 percent.

Reserve Bank Governor Philip Lowe (pictured Tuesday evening in Perth) argued that another rate hike was needed so inflation expectations did not become entrenched, but admitted it was difficult for many borrowers

The May rate hike was the 11th in just a year and marked the heaviest pace of monetary policy tightening since 1989, before the RBA embarked on a target for cash interest rates.

This followed a pause in April after 10 consecutive rate hikes from May 2022 to March 2023.

Despite this, median house prices rose last month in Sydney, Melbourne, Adelaide, Perth and Hobart, data from CoreLogic showed.

Mr Symond said an undersupply of housing due to strong immigration was likely to support a recovery in property prices following the rate hike-induced downturn.

“It’s supply and demand, there’s a massive housing shortage for Australia and migration is on the rise,” he said.

“I think we need population in the long run.”

The RBA money rate rose a quarter of a percentage point on Tuesday to an 11-year high of 3.85 percent

What a rate hike in May means for you

$500,000: $79 up to $2,963 from $2,884

$600,000: $95 up to $3,555 from $3,460

$700,000: $111 up to $4,148 from $4,037

$800,000: $127 up to $4,740 from $4,613

$900,000: $143 up to $5,333 from $5,190

$1,000,000: $158 up to $5,925 from $5,767

Monthly amortization figures for a 30-year loan based on a Commonwealth Bank floating rate rising from 5.64 percent to 5.89 percent to reflect the Reserve Bank’s cash interest rate rising 25 basis points to 3.85 percent, an increase of 3.6 percent

Sydney, Australia’s most interest-rate sensitive market, saw house prices rise a further 1.3 percent to $1,253,759 last month.

But this also coincides with the federal government’s expectations of 400,000 migrants arriving in Australia in 2022-2023, a level significantly higher than the October budget forecast of 235,000.

That increase in net overseas migration, driven by more international students, is expected to support a recovery in the housing market.

Reserve Bank Governor Philip Lowe argued that another rate hike was needed to prevent inflation expectations from getting stuck, but admitted it was difficult for many borrowers.

“I want to recognize that the combination of higher interest rates and other cost-of-living pressures is putting pressure on many people’s budgets and that it is a difficult time for many families,” he told a dinner party in Perth on Tuesday night.

“Real wages have fallen and those with high debts have experienced a very large increase in their mortgage payments.

“I want to assure you that the board is very focused on understanding these pressures and that we take them into account in our decisions.”

The latest interest rate hike means that a borrower with an average loan of $600,000 will see their monthly payment increase by $95 to $3,555, up from $3,460.

That’s based on a floating Commonwealth Bank interest rate that rises from 5.64 percent to 5.89 percent for a borrower with a 20 percent down payment and a 30-year term.