RBA prescribes Australia with another double dose rate hike

The RBA has today increased the cash rate by 0.50 percentage points to 1.35 per cent, as the Board moves swiftly to curb inflation.

After three consecutive hikes, the cash rate is now at its highest point in three years.

If lenders pass on the 0.50 percentage point hike, as expected, the average owner-occupier with a $500,000 loan and 25 years remaining will see their repayments rise by $137. Adding up the May, June and July hikes, the total increase in monthly repayments will be $333.

Increase in repayments

Calculations are for existing customers and based over 25 years

Source: RateCity.com.au. Based on an owner-occupier paying principal and interest with 25 years remaining. Starting rate is the RBA average existing owner-occupier variable rate of 2.86% and assumes banks pass the cash rate hikes on in full.

In today’s statement, Governor Lowe said the Board is committed to doing what is necessary to ensure inflation in Australia returns to target over time and is warning further rate hikes are on the cards.

If the cash rate gets to 2.60 per cent by February next year, as forecast by Westpac, then someone with a $500,000 loan at the start of the hikes could see their repayments rise by $685 in total in just 10 months (for full calcs see below).

If the banks pass on today’s 0.50 percentage point hike in full, RateCity.com.au estimates:

• The average existing owner-occupier variable rate will be 4.11%.
• All big four banks’ lowest variable rates could soon be over 3%.
• Less than a dozen lenders are likely to offer variable rates under 3%.

RateCity.com.au research director, Sally Tindall, said: “The RBA has prescribed the country with another double rate hike as the board tries to cool inflation.”

“When you combine the last three rate rises, the average household with a $500,000 loan will see their monthly repayments rise by $333 in total. That’s like paying for an extra week’s worth of groceries and petrol, every single month,” she said.

“There’s more pain on the way for variable home loan customers with another double hike tipped for next month. If this happens, it will be the sharpest rise to the cash rate since 1994, when the RBA hiked by 2.75 percentage points in the space of five months.

“Borrowers need to ready themselves for rates to rise by a total of 2.5 percentage points by early next year, potentially even higher.

“While rising interest rates are designed to bring down inflation, it doesn’t happen overnight. It’s going to take a number of months for the RBA to get inflation back under control, which means, for now, families will feel the heat from all fronts,” she said.

Tips for borrowers worried about rising rates:

• Tighten your belt: See how you can restructure your lifestyle so that you spend less every single week. That might be fewer dinners out and less takeaway coffees.
• Review your bills: Put your regular bills under the microscope to see where you might make changes, such as your energy, phone and internet packages.
• Compare your home loan rate: If you’re on a variable rate, compare it to what’s on offer for new customers from both your bank and other lenders. Switching to a cheaper lender might help inject some real relief into your budget at a time when costs are on the rise.
• Ask for help early: Before you miss a mortgage repayment, call your bank and see what options you have. You can also call a financial counsellor for advice. The National Debt Helpline is: 1800 007 007.

Potential increase in repayments by Feb 2023

Based on an owner-occupier paying principal and interest with 25 years remaining

Source: RateCity.com.au. Notes: based on an owner-occupier paying principal and interest with 25 years remaining on the average variable rate and assuming the hikes are passed on in full. Calculations are based on Westpac’s current cash rate forecast.

Compare home loans in Australia