The average Australian is paying hundreds of dollars more in mortgage repayments than this time last year and with more interest rate increases forecast, it is only expected to get worse.
The nation’s official cash rate sat at a record low of just 0.1 per cent between November 2020 and May this year, when the first of a series of consecutive rises began.
In May, a rise of 0.25 percentage points was made, and each month since when the Reserve Bank of Australia’s (RBA) board has met, a further 0.5 percentage point increase has been made, creating a sharp rise in the amount homeowners have to pay on their home loans.
Interest rate increases so far in 2022. Source: SBS News
How much will the cash rate rise in October?
AMP Capital’s chief economist Shane Oliver expects rates to rise by at least 0.25 percentage points today.
“The one thing everyone agrees on is that the Reserve Bank will raise rates again and that is because inflation is still high and rising,” he said.
Economists are split as to whether the increase will be 0.25 or 0.5 percentage points, but Mr Oliver thinks the recent series of big increases needed to be given time to have the desired effect.
“That is going to have a lagged impact on the economy, and the Reserve Bank needs to cool down to allow that lagged impact to show up,” he said.
“That’s why some, including myself, think that the Reserve Bank will, and indeed should, cut back to a 25 basis point hike rather than keep going with the 50.”
Mr Oliver pointed out that the Reserve Bank was still worried about inflation and the Australian economy had yet to experience a big slowdown, which could be given as reasons for a bigger increase.
Core inflation is sitting at 4.9 per cent – still well above the RBA’s target range of two to three per cent.
How much more are mortgage holders paying since rates started rising?
Financial product comparison website RateCity estimated those with a $500,000 mortgage were already paying more than $600 a month extra since April for home loan repayments.
If rates go up by 0.25 per cent on Tuesday, the total increase between May and October will be 2.5 percentage points. Source: SBS News
RateCity estimates a 0.5 per cent interest rate increase will mean these people will have to set aside about another $150 a month for their mortgage, an increase of about $760 in total since May.
Interest rate rises are also affecting the borrowing capacity of those looking to buy a home.
RateCity estimates the average person’s maximum borrowing capacity has dropped by approximately 20 per cent, or $134,500, as a result of the recent interest rate rises.
