The Reserve Bank of Australia (RBA) has confirmed it is lifting the cash rate for the seventh consecutive month, with a 25 basis point increase following November’s Board meeting.
The cash rate is now at an almost 10-year high following a quick-fire 275 basis point lift in only 181 days, with the RBA continuing to wrestle rising inflation.
It comes as Compare the Market’s latest research revealed nearly 50% of Australians fear they won’t be able to afford rising mortgage and rental payments within the next 12 months.
The data also revealed an eye-watering 65% have been stressed about their finances, while just a mere 13% of Aussies felt the recently announced Federal Budget addressed the cost-of-living crisis.
While many Australian homeowners were bracing themselves for the worst, Compare the Market’s General Manager of Money Stephen Zeller said 25 basis points could be more than enough to tip borrowers into mortgage stress.
“Unfortunately, there aren’t many winners this Melbourne Cup Day with another whack to the household budget when we’re already feeling the pinch.
“It’s crucial for homeowners to plan ahead and be analytical of their rate, otherwise people could be paying thousands of dollars in extra interest over the life of their loan unnecessarily,” Mr Zeller said.
“To avoid getting caught out even borrowers with a locked-in rate, who are temporarily shielded from rising interest rates, should be preparing for the future. Especially considering the RBA warned most fixed-rate loans are due to end in the second half of 2023.
“Aussies with a fixed-rate loan due to expire by the end of 2023 can expect a median increase of around $650 in their monthly repayments.
“In this market complacency kills. It’s sink or swim, so assess your current financial situation now – the value of your property, and the composition of your debt.
“Do your research to find the most cost-effective way out of this turbulent time.
“Great offers that were there yesterday are gone today, so do your research and do it fast. Advertised rates are moving quick. In the last month, we have seen some banks pass on the full 25 basis point increase to their latest offers while others are being a lot more competitive.
According to Zeller, the 25 basis point increase may not be the last of the year by the RBA, with inflation likely to peak over the New Year period.
For Australians on a variable rate home loan, below is how a 25 basis point increase in the cash rate, if passed on by the lender in full, would affect monthly repayments:
| Mortgage size | 25 basis point increase to 5% p.a. | |
| Increase in monthly minimum repayments | Increase over the life of the loan | |
| $500,000 | +$76 | +$27,314 |
| $600,000 | +$91 | +$32,776 |
| $750,000 | +$114 | +$40,971 |
| $900,000 | +$137 | +$49,165 |
| $1,000,000 | +$152 | +$54,627 |
| Monthly repayments do not include any reduction in the mortgage balance over time. These calculations assume: An owner-occupied variable interest rate of 5% p.a; principal and interest (P&I) repayments; cash rate increases are passed on in full; the loan term is 30 years; and there are no monthly fees. | ||
Australians with a $600,000 mortgage will likely soon be paying $964 more each month than they were at the start of May, following a 275 basis point jump in just five months.
| Mortgage size | Increase in average monthly repayments since the start of May (275 basis points) |
| $500,000 | +$803 |
| $600,000 | +$964 |
| $750,000 | +$1,205 |
| $900,000 | +$1,446 |
| $1,000,000 | +$1,606 |
| Reserve Bank Lenders’ Interest Rates. Monthly repayments do not include any reduction in the mortgage balance over time. These calculations assume: An owner-occupied variable interest rate of 2.86% p.a; principal and interest (P&I) repayments; cash rate increases are passed on in full; the loan term is 30 years; and there are no monthly fees. | |
“Households with decent buffers should be able to ride out the rate rise but those with low liquidity buffers should be reviewing costs beyond their home loan. Get into a habit of checking your budget and re-evaluating household living costs such as energy plans and insurances. But beware of the honey trap. It’s vitally important to check the rate is competitive first before switching”.
“This might seem tedious and tiring but it’s the best way to tackle high living expenses and get on the front foot of what could be a really challenging time into Christmas,” Mr Zeller said.
For more information, please contact:
Natasha Innes | 0416 705 514 | [email protected]
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