Today the cash rate was hiked again with the RBA announcing it has lifted rates significantly, from 0.35% to 0.85%.
Following last month’s first rate rise in over 11 years, the RBA today came good on its assessment that rates need to keep increasing.
Banks and lenders will surely pass today’s huge 0.5% lift onto Melburnians paying off loans.
The RBA explained today these measures are needed in the fiscal fight against rising inflation, which has reached a worrying 5.1%.
‘Inflation is expected to increase further, but then decline back towards the two-three per cent range next year,’ said the RBA today.
‘Higher prices for electricity and gas and recent increases in petrol prices mean that, in the near term, inflation is likely to be higher than was expected a month ago.
‘As the global supply-side problems are resolved and commodity prices stabilise, even if at a high level, inflation is expected to moderate.
But what does this all mean and why is the RBA heaping even more financial strain on Australians?
Increasing the cost of borrowing money theoretically discourages people’s spending on other things, thereby reducing demand and (hopefully) upward pressure on prices, bringing them and inflation down.
Last month’s increase of 0.25% cost the average borrower (on a $500,000 loan with 25 years left) an extra $65 a month. Peering into the cash-rate crystal ball, if we reach 1.75% cash rates, the repayments for an average variable borrower could be an extra $443 per month.
So, as this country (and many others around the world) move into a higher interest rate cycle, expect a bumpy ride over the next 12-24 months as rising inflation is tackled.
The RBA says they expect inflation pressures to have moderated by 2023. But who knows? As we’ve seen, forecasting is fraught with danger. Late last year the RBA predicted that 2022 would likely not see any cash rate rises at all!
After all, who could’ve predicted a war between Russia and Ukraine and the effect it would have on global oil prices? Or the floods earlier this year in Australia and their impact on prices at the supermarkets?
For the new Prime Minister Anthony Albanese, today’s increase will be a blow so early in his first term — even though, like his predecessor Scott Morrison, there’s very little the politicians can do about RBA policy.
It’s not all bad news, though.
The cost of houses in and around Melbourne are likely to be affected. HSBC has revised down its 2023 Australian housing price estimates by 5-10% (after originally forecasting a 1-4% growth). And property analyst CoreLogic backs up this pessimistic view, noting that in May Melbourne house values fell 0.7% — dropping for a third month in a row.
Cheaper house prices will help Melbournians looking to fund a deposit and get onto the property ladder. Though right now, house prices are still at the top end — even for those seeking a seachange.
On the Bellarine Peninsula, for example, Domain figures show the median house price in Ocean Grove is now $1.07m, having jumped a staggering 26.6% over the year to March.
Meanwhile in Melbourne, the median house price is still over a million ($1.092m), so it will take a while for any price correction to work its way into Melbourne’s market.
While this rate rise will affect everyone with a mortgage, some will feel it more than others. Fixed interests were available at rock-bottom rates of around 2.5% during the height of the COVID-19 pandemic. With this increase – and the chance of more rate increases still to come – those who locked in can anticipate their repayments doubling (or worse) when it’s time to refinance next year or in 2024.
If these latest rate hikes have you worried about your capacity to pay your bank debt, contact us straight away. We can share tips on how to chase down lower rates, improve your savings, consolidate other debts and take the pressure off increasing household prices.
We have several convenient Melbourne CBD locations, and our service is always 100% free to you.
Marc has been a professional lender for 28 years. After beginning his career in 1990 with a UK Building Society, he moved to Australia where he held several different retail banking roles. In 1999 it became clear to him that a mortgage broker would eventually become an obvious choice for someone looking for a home loan so he took the plunge and became an independent broker. He hasn’t looked back since!