Australia interest rates: Mortgage owners will have to pay an extra $991 by Christmas
Economists have forecast further interest rate hikes as the Reserve Bank of Australia struggles to rein in inflation, leaving households hundreds of dollars worse off.
The average Australian mortgage owner could pay an extra $991 on their mortgage by the end of the year, if the Reserve Bank of Australia passes on all of its planned rate hikes.
Commonwealth Bank – which was the first of the big four banks to match the RBA’s rate hike in July – estimates Australian homeowners could be burdened with a combined 0.75% hike by the end of the month. ‘year, 7 News reports.
CommSec Chief Economist Craig James estimates that the RBA will raise the cash rate by 25 basis points in August, September and again in November.
According to these forecasts, the official exchange rate will rise from 1.35% to 2.1% by the end of the year.
“We can expect further interest rate hikes in the coming months. It’s the most aggressive the Reserve Bank has ever been – we’ve had three interest rate hikes in a row and the last two were 50%,” Mr James said.
“At 2.1%, the Reserve Bank would stop there for a while and see what impact that has on the economy.”
Using these rate forecasts, a mortgage owner with an average Australian mortgage of $615,000 could expect to spend $991 more on their repayments between July and December. This is based on someone with a 30 year loan, with an average Australian variable interest rate of 3.93%.
According to Moneysmart’s mortgage calculator, an increase from 3.93% to 4.18% would result in an increase in monthly repayment of $89, or from $2,911 to $3,000. A further 25 basis point increase in September would see repayments rise to $3,091, meaning borrowers would have to shell out an additional $180 each month, compared to what they were paying in July.
If banks passed on another 0.25% increase in November, monthly repayments would rise further to $3,182, representing a $271 increase in repayments in just four months.
This means that between July and December, the average borrower would have paid $991 more in repayments, under the interest rate hikes Mr. James predicted.
It should also be noted that these figures do not take into account the monthly account fees charged by some lenders.
However, economists have been varied in their interest rate forecasts. At the most dire end, ASX 30-Day Interbank Cash Rate Futures predicted that the cash rate could rise to 3.5% by May next year.
If the rate hike occurs, borrowers with a $600,000 loan could pay more than $5,000 more on their mortgage in a single fiscal year.
ANZ Capital chief economist Shane Oliver previously told news.com.au that was unlikely due to the catastrophic impact it would have on the Australian economy. He said a rate hike to 3.5% would likely cause the housing market to “collapse” and push the market into a “deep recession”.
“For someone who has a $600,000 loan, their mortgage bill has already gone up by about $420 a month, or over $5,000 more a year,” he said.
“If there’s about a 3% increase in the cash rate, that would go to about $12,000 a year.”
“If that were to happen, combined with the rising cost of living, I think it would push the economy into recession.”
The RBA governor, however, vaguely hinted that it was “reasonable” for interest rates to hit 2.5%. Speaking to ABC 7:30 a.m. in June, he said this could be an option for the RBA to implement in order to reduce inflation, which he predicted could reach 7% by Christmas.
Despite this, he stressed that the predictions were not set in stone.
“It’s not clear at this time how high interest rates will have to go to get this,” Dr Lowe said.
“I am convinced that inflation will come down over time, but we will need to have higher interest rates to achieve this result.”