Millions of Australians will be weighed down by a $434 increase between now and Christmas
Australian mortgage holders already battling the cost of living crisis should seek an additional $434 before Christmas on forecasts of further rate hikes.
The Reserve Bank of Australia this week raised interest rates by 0.5 percent, the third straight increase.
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This brings the official cash rate to 1.35 percent, with warnings of more gains on the horizon.
Australia’s biggest lender, Commonwealth Bank, predicts another 0.75 percent increase over the rest of the year.
CommSec Chief Economist Craig James said it would come in three separate gains of 0.25 percent.
“Reserve Bank has not finished raising interest rates,” he said.
“We can expect further rate hikes in the coming months. This is the most aggressive a Reserve Bank has ever done – we’ve had three consecutive rate hikes and the last two were 50 basis.
“Our hope is, in August, we’ll probably get a rate hike, maybe around a quarter of a percent, another quarter of one percent in September and also in November.”
That would take the cash rate up to 2.1 percent.
“At 2.1 percent, the Reserve Bank will basically stop there for a while and see what impact it has on the economy.”
So, what do these predictions mean for borrowers in terms of dollars and cents?
Market comparison site Finder said the variable average home loan rate across Australia was 3.93 per cent.
Meanwhile, the Australian Bureau of Statistics said the average new mortgage was $615,000.
A person with a $615,000 mortgage, with 25 years remaining on the loan principal and 3.93 percent interest can expect to pay $3222 in payments per month, according to Mozo’s rate change calculator.
If the rate rises 0.25 percent, as James predicted in August, it rises to $3308, a monthly increase of $86.
Then, if a quarter percent increase occurred in September, it would rise to $3394 per month, another increase of $86.
Provided there are no gains in October, a third and final 25 basis point increase in November would increase monthly payments to $3482, the latest increase of $88.
With five months of the year remaining, the overall cost to mortgage holders comes in at an additional $434 than they’re paying now.
James said the prediction meant “more pain ahead for borrowers”.
But other market experts said it could be a conservative estimate.
Ratecity said the last three rate hikes would cost the average household an additional $500,000 in loans and an additional $333.
“It’s like paying for groceries and gas for a week, every month,” said Ratecity research director Sally Tindall.
“There is more trouble for variable home loan customers with a double hike expected for next month. If this happened, it would be the sharpest rate hike since 1994, when the RBA rose 2.75 percentage points in five months.
“Borrowers need to prepare for a total rate hike of 2.5 percentage points at the start of next year, potentially even higher.
“While the rate hike was designed to lower inflation, it didn’t happen overnight. It will take the RBA a few months to get inflation under control, which means, for now, the family will be feeling the heat from all fronts.”
Inflation was last reported at 5.1 percent.
But the figures to be released towards the end of the month, which will cover the June quarter, are expected to paint a more bleak picture.
“Global inflation is high,” said RBA Governor Philip Lowe.
“This is being driven by COVID-related disruptions to supply chains, the war in Ukraine and strong demand putting pressure on productive capacity.
“Monetary policy globally is responding to this higher inflation, although it will be some time before inflation returns to target in most countries.”
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