Blow for households as major bank scraps RBA interest rate cut call – realestate.com.au

ANZ has become the latest bank to scrap its forecasts for a rate cut next year as higher-than-expected inflation dampens hopes for households under pressure from peak spending season.

ANZ joins CBA and NAB in predicting the RBA will remain on an “extended pause” through 2026.

“We no longer see one definitive rate cut from the RBA in the first half of 2026 given recent inflationary pressures,” Adam Boyton, head of Australian economics at ANZ, said in a note on Tuesday.

But the bank does not expect a rate increase in the short term due to recent signs of a weakening labor market.

“As a result, we expect the RBA to remain extended, with the cash rate remaining at the current level of 3.6%,” he said.

Inflation data released last week showed a a further increase in annual inflationwhich is now well above the RBA’s target range of 2-3%.

The consumer price index rose 3.8% over the year to October, even higher than September’s shocking 3.6% inflation rate.

The RBA’s preferred inflation measure, the trimmed average (which ignores many one-off and volatile price movements) is also above the RBA’s target, reaching an annual rate of 3.3% in October.

That now leaves Westpac as the only major rate cut for the banks next year, with chief economist Luci Ellis – who was assistant governor for economics at the RBA for almost seven years – sticking to his predictions for two rate cuts, likely in May and August.

The three rate cuts this year have already provided a boost to the housing market, with house prices rising for 11 months in a row and search activity on realestate.com.au reaching record levels.

Figures from Mortgage Choice show that household borrowing power has increased by tens of thousands of dollars since the first rate cut in February.

All things being equal, a household that could borrow the average loan size of $661,000 at the beginning of 2025 would see an increase to $716,657 after three 0.25% interest rate cuts, an improvement of more than $55,000.

This assumes a starting interest rate of 6.29% and that the lender fully passes on any interest rate reduction.

Loan origination data from Mortgage Choice shows that the average home loan size increased by 8.4% over the past year as borrowers scramble to enter the rising real estate market.

The average home loan size has reached new record highs as borrowers try to keep pace with rising home prices. Photo: Getty

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Commenting on the data, Mortgage Choice CEO Anthony Waldron said this is the highest value ever.

“During the September quarter, we saw an increase in average loan sizes in every region, bringing the national average loan size to more than $660,000,” Mr. Waldron said.

“And the results of our latest consumer survey indicate that this strong activity will continue into the summer.”

It comes as ABS data shows the total value of Australia’s housing market rose by $317 billion in the September quarter to an eye-watering $11.9 trillion.

Since then, PropTrack data shows that home prices have continued to rise, reaching new record highs across the country in November.

But with housing affordability near its worst levels on record, REA Group senior economist Eleanor Creagh noted that rising affordability is likely to limit the pace of house price growth next year.

“Monthly growth has weakened in capitals following October’s stronger pace, and with interest rates expected to remain unchanged for an extended period, affordability constraints are likely to result in subdued price growth in 2026,” she said.

“National annual growth is slightly above the average of the past decade, and is not a repeat of the 20-30% increases of previous economic growth.”