RBA set to raise rates again on September 29: what it means for first home buyers

The Reserve Bank's Monetary Policy Board sits down on 28 and 29 September, and money markets are pricing in a strong probability of another cash rate rise. All four major banks now expect the board to move, which would be the latest step in a rate cycle that many economists thought had already peaked earlier this year. For anyone planning to borrow soon, the timing makes this a decision worth watching closely.

Why another rate rise is on the table

Annual headline inflation has eased, but the trimmed mean measure the Reserve Bank watches most closely has held above target, suggesting underlying price pressure has not cooled as quickly as hoped. Governor Michele Bullock told a parliamentary committee that the labour market still has some "heat" that needs to come out of it, pointing to wages and business costs as ongoing sources of inflation risk. Combined with stronger economic data and firmer oil prices, that has shifted market expectations toward an earlier move rather than a later one.

• Underlying inflation: the trimmed mean measure has stayed above the Reserve Bank's target band, a key input into the board's decision.
• Labour market: continued wage and business cost pressure is cited as a reason the board may want to act sooner.
• Market pricing: futures markets have shifted to imply a high probability of a move at this meeting, with a possible follow-up increase later in the year.

What a higher cash rate means for your mortgage

A cash rate change does not automatically become a mortgage rate change. Lenders make their own pricing decisions and typically pass through some or all of an official move within a few weeks, sometimes with a lag. If you are on a variable rate, a rise generally means higher minimum repayments unless you have built up a buffer in an offset account or redraw facility. If you are weighing up a fixed rate, it is worth remembering that fixed pricing already reflects where lenders expect the cash rate to head, not just where it sits today.

• Existing variable-rate borrowers may see repayments rise if lenders pass through the move in full.
• New borrowers are assessed against a serviceability buffer set above the actual loan rate, so a further rise narrows how much headroom that buffer provides.
• Fixed rates can move ahead of an official decision as lenders reprice based on where the market expects rates to go.

What this means for first home buyers

A rate decision two years into a buying journey feels abstract. A rate decision in the weeks before you are due to apply for pre-approval is not. If you are close to entering the market, this meeting is a reasonable prompt to stress test your numbers again rather than relying on figures from a few months ago.

• Re-check your borrowing capacity at a slightly higher rate than today's, so a pre-approval does not fall short if lenders reprice.
• Compare how a fixed versus variable rate would change your repayments over the life of the loan, not just in year one.
• Remember that a low-deposit government scheme reduces how much deposit you need, but it does not reduce how sensitive your repayments are to future rate movements.

Run the numbers

Rather than guessing how a further rate rise would affect your situation, these tools let you model it directly:

• Interest Rate Shock Tester - see how your repayments would change if rates rise further from here.
• Borrowing Power Calculator - check how a rate change affects what lenders may be willing to approve.
• Mortgage Offset Calculator - see how an offset balance can soften the impact of rate rises on your repayments.