The RBA is expected to leave the cash rate on hold this month, but Australians need to get ready for their mortgage repayments to rise.
The RBA board will be closely monitoring what impact the war in Ukraine will have and will likely reiterate its desire to ‘wait and see’ before lifting rates.
Despite the global uncertainty, economists from the big four banks still expect the RBA to start hiking the cash rate later this year.
Big four bank forecasts: how high will the cash rate go and when?
- CBA: hikes to start in June. Cash rate to reach ‘neutral’ rate of 1.25% by March 2023.
- Westpac: hikes to start in August. Cash rate to reach 1.75% by March 2024.
- NAB: hikes to start in November. Cash rate to reach 2.50% by November 2024.
- ANZ: hikes to start in September. Cash rate to reach 2.00% by November 2023 and peak above 3.00% but not until after 2024.
How much extra could mortgage holders be paying by the end of 2023?
RateCity.com.au analysis of the big four bank cash rate forecasts shows mortgage repayments could rise between $303 and $503 by the end of next year (December 2023) for someone with a $500,000, 25-year owner-occupier, principal and interest home loan.
Big 4 bank forecast RBA hikes: impact on $500K home loan
|Cash rate forecast|
end Dec 2022
|Cash rate forecast|
end Dec 2023
|Increase: mthly repayments Dec 2023 ($500K loan)|
Source: RateCity.com.au. Notes: forecasts are from the big four bank economic teams. 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 2.96%. Westpac forecasts from 2023 are based on quarters and applied in the middle of each quarter.
Less than a dozen fixed rates under 2% left
The RateCity.com.au database shows there are now 11 fixed rates under 2 per cent, 10 of which are fixed for just 1-year. At the peak (April 2021), there were around 180 fixed rates under 2 per cent.
- 11 fixed rates under 2% for owner-occupiers (10 fixed for 1 year, 1 fixed for 2 years).
- 201 fixed rates under 2.5% for owner-occupiers.
- 67 variable rates under 2% for owner-occupiers.
- 63% of lenders (77 lenders) on the RateCity database have hiked fixed rates at least once since the start of the year.
- 27% of lenders (33 lenders) have hiked fixed rates twice this year, including CBA, Westpac and ANZ.
RateCity.com.au research director, Sally Tindall, said the war in Ukraine was likely to feature prominently at this month’s board meeting.
“The RBA has said it’s prepared to be patient to better understand how much of Australia’s inflation pressures are transitory. This also buys the Board time to see if unemployment can drop below 4 per cent, giving wages more opportunity to grow,” she said.
“Now, less than a week into the Russian invasion of Ukraine, there’s an added layer of uncertainty and even more to consider. As a result, the RBA is likely to continue its ‘wait-and-see’ approach at this month’s meeting.
“The RBA is prepared to be patient before hiking rates, however, mortgage holders still need to be prepared.
“By the end of next year, the average mortgage holder could be paying over $300 extra a month, if big four bank economic forecasts are realised.
“Don’t wait for the RBA to start hiking the cash rate, now is the time to build a buffer.
“Now is also a great time for anyone on a variable loan to either haggle with their bank for a lower rate or consider refinancing to a better deal,” she said.
What can mortgage holders do now before rates rise?
- Get yourself a rate cut now before the RBA hikes start: Call your bank and haggle. The average variable rate mortgage holder is paying 0.40% more than a new customer. If your bank doesn’t budge, you could be better off refinancing.
- Make extra repayments: Paying down as much of your debt now, while your rate is still low, will help soften the blow when rates rise.
- Prepare your budget: See where you can trim your budget to free up money to help build a buffer.
- On a fixed rate? Set a reminder for two months before it ends so you can begin shopping around for a new loan. Fixed loans often roll over to higher variable rates unless you do something about it.
Lowest rates on RateCity.com.au
|Rate type||Lender||Advertised rate|
|1-yr fixed||Unity Bank|
|2-yr fixed||Geelong Bank|
|3-yr fixed||Geelong Bank|
|4-yr fixed||G&C Mutual Bank|
|5-yr fixed||G&C Mutual Bank|
|Variable||Reduce Home Loans|
Source: RateCity.com.au. Note: rates are for owner-occupiers paying principal and interest. Some LVR requirements apply.
Lowest big four bank owner-occupier home loan rates
Source: RateCity.com.au. Note: some loan-to-value ratio requirements apply.