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3 of the big 4 banks predict RBA will hike in May - how high will rates go?

3 of the big 4 banks predict RBA will hike in May - how high will rates go?

Three of the big four banks have forecast that the RBA will pull the trigger on a rate rise in its meeting in May.

Economists from Westpac, NAB and ANZ have all brought forward their forecasts on the back of the latest surging inflation figures. Westpac and NAB now expect a 0.15 percentage point hike in May and a 0.25 percentage point hike in June.

Big four bank forecasts: how high will the cash rate go and when?

  • CBA: hikes to start in June. Cash rate to reach 1.25% by February 2023.
  • Westpac: hikes to start in May. Cash rate to reach 2.00% by May 2023.
  • NAB: hikes to start in May. Cash rate to reach 2.50% by August 2024.
  • ANZ: hikes to start in May and reach 2.25% over the next 12 months.

If the RBA hikes in May and June – how much will mortgage repayments rise?

If the RBA hikes by 0.15 percentage points in May and 0.25 percentage points in June, someone with a $500,000 mortgage will see their repayments rise by $39 next month and by June they will be paying $104 more a month than they are today. 

Impact on $500K, 25-year mortgage

Av. variable rateMonthly repaymentsDifference to today
Today

2.92%

$2,350 

May 2022

3.07%

$2,389 

$39 

June 2022

3.32%

$2,454 

$104 

Source: RateCity.com.au. Notes: based on an owner-occupier paying principal and interest on the average existing customer variable rate of 2.92% and 25 years remaining. Loan size is based on amount owing in April 2022. 

How much extra could borrowers pay if Westpac’s forecasts are realised?

RateCity.com.au analysis shows that if the cash rate reaches 2 per cent by May 2023, as predicted by Westpac, the average owner-occupier with a $500,000 balance today, and 25 years remaining, could see their repayments rise by $374 by the end of the year and $511 by May 2023. 

Westpac forecasted RBA hikes: impact on $500K home loan

Calculations are for existing customers, not new customers, and based over 25 years. 

Cash rateAv. variable rateMonthly repaymentsDifference to today
Today

0.10%

2.92%

$2,350 

End of this year

1.50%

4.32%

$2,724 

$374 

May 2023

2.00%

4.82%

$2,861 

$511 

Source: RateCity.com.au. Notes: forecasts are from Westpac’s economic team. Calculations are based on an owner-occupier paying principal and interest with an outstanding debt of $500K over 25 years on the RBA's average existing customer variable rate of 2.92%.

RateCity.com.au research director, Sally Tindall, said: “A rate hike next week is now a live possibility on the back of Wednesday’s surging and surprising inflation figures.”  

“Three of the big four banks are now predicting the RBA will pull the trigger on a May cash rate hike,” she said. 

“An average borrower with a $500,000 loan could see their repayments rise by $104 by June and $374 by the end of this year, if Westpac’s forecast is realised. 

“While a series of rapid rate hikes are imminent, just how high the cash rate will go remains a point of conjecture.

“On one hand you’ve got CBA predicting a neutral cash rate of 1.25 per cent, Westpac believes it’ll get to 2 per cent, while the markets are predicting it will get to 3.4 per cent by August next year. One thing likely to hold the RBA back is the fact that many Australians up to their necks in housing debt.

“Many people may now be wondering if it’s worth fixing their home loan, even though ultra-low fixed rates are long gone.

“Think about what suits your finances and your lifestyle and put all of these variables into your equation. The last thing you want to do is panic fix without thinking through your options.

“If you decide to fix, it’s critically important to shop around. There are still relatively decent fixed rates out there, but they are getting harder to find by the day,” she said.

Analysis of the RateCity.com.au database shows the lowest 2-year fixed rate is 2.45 per cent and the lowest 3-year fixed rate is 2.79 per cent. 

Lowest home loan rates on RateCity.com.au

Rate typeLenderAdvertised rate
1-yr fixedUnity Bank

1.84%

2-yr fixedOrange Credit Union

2.45%

3-yr fixedThe Mac

2.79%

4-yr fixedSouthern Cross Credit Union

3.69%

5-yr fixedAustralian Unity

3.74%

Lowest variableReduce Home Loans, Homestar Finance, Pacific Mortgage Group

1.79%

Source: RateCity.com.au. Note rates are for owner-occupiers paying principal and interest. Loan-to-value ratio requirements apply

Big four bank lowest rates for owner occupiers

Rate typeCBAWestpacNABANZ
1-yr fixed

2.99%

2.79%

2.99%

3.29%

2-yr fixed

3.79%

3.69%

3.99%

3.99%

3-yr fixed

4.19%

4.19%

4.49%

4.39%

4-yr fixed

4.39%

4.39%

4.79%

4.69%

5-yr fixed

4.49%

4.59%

4.99%

4.89%

Lowest variable

2.19%

2.09%

2.19%

2.19%

Source: RateCity.com.au. Rates are for owner-occupiers paying principal and interest. Some LVR requirements apply.

Update (May 3): information changed to reflect the RBA cash rate change on May 3

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This article was reviewed by Research Director Sally Tindall before it was published as part of RateCity's Fact Check process.

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