Homeowners will be plagued with hundreds of extra dollars in mortgage payments if another nightmare rate hike hits, with the Reserve Bank of Australia pushing through another 0.25 percent rate hike.
This is the sixth rate hike since May and brings interest rates from a record low of 0.1 percent to 2.6 percent.
For a typical homeowner with a $500,000 mortgage, the October increase means homeowners will have to spend an additional $78 per month to cover the repayments, according to Canstar.
It also means homeowners’ repayments have skyrocketed by an additional $729 in total since the rate hikes began in May.
A $750,000 mortgage makes homeowners pay an extra $117 per month and $1095 more compared to six months ago.
Aussies with $1 million mortgages will see loan repayments increase by as much as $156 per month and an additional $1460 since May, according to Canstar’s analysis.
For those with a $2 million mortgage, repayments will rise $311 per month in October alone and have increased by $2920 since May, when interest rates began to rise.
NAB was the first major bank to pass on the interest rate hike in full.
It said the standard floating rate for home loans will rise 0.25 percent from Oct. 14.
NAB Group Executive for Personal Banking, Rachel Slade, said NAB was focused on supporting customers.
“Our mortgage loan specialists can assist with a financial health check to ensure you get the best rate for your situation and our NAB Assist team is on standby for those who need extra help,” she said.
“The best first step is to talk to us so we can find the best way to take care of you – the sooner the better.”
Westpac also announced that it will pass on the full rate increase from October 18.
“We know that many of our clients look to their finances to help manage changes in their household budget,” said Chris de Bruin, Westpac’s Chief Executive Consumer & Business Banking.
“The majority of our borrowers remain in good shape by more than two-thirds ahead of mortgage repayments, and there is currently no material change in customers seeking financial support.
“We will continue to monitor the situation and strengthen our customer support teams to help customers navigate the changing rate cycle.”
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Three of the four major banks expected an interest rate hike of 0.5 percent, while CommBank forecast a smaller rise of 0.25 percent.
dr. Brendan Rynne, KPMG’s chief economist, said the continued rate hike was lower than expected and the RBA has acknowledged that recent interest rate hikes have not yet felt their full effect on the economy.
“It appears that the Governing Council is concerned that the lag effects of the past rate hikes are about to take effect, and given growing fears of a global recession and growing concerns about how the conflict between Russia and Ukraine may unpacking, it wants to ensure that the path to continued economic prosperity and lower inflation is kept open,” he noted.
“Monetary policy has been described as pulling a brick on a rubber band – nothing happens for a long time, but then the effect can be dramatic.
“The board of directors may also be cautious about higher household debt now, compared to the last time interest rates were raised so quickly, in the mid-1990s. This adds to the uncertainty about how powerful the current increases may turn out to be.”
He added that there is still an opening for more rate hikes in the future, Tuesday’s “soft” approach was “contrary to the big bang approach adopted by the US Federal Reserve”, where wages are rising significantly compared to Australia. .
AMP chief economist Shane Oliver said there was no doubt that interest rates would rise as a result of high inflation, which is more than 6 percent, as well as comments from RBA indicating that rate hikes were necessary.
“After five rate hikes in a row, the RBA should slow the pace of rate hikes to assess the impact of the rate hikes to date and allow for monetary policy slowdowns,” he said.
“As such, we expect an increase of 0.25%. But the risk is high that it will be increased by another 0.5 percent, given the excessive focus on backward-looking inflation and jobs data and the hawkishness evident among other major global central banks.
“A 0.4 percent increase would be a nice compromise.”
RBA Governor Philip Lowe acknowledged last month that rate hikes were unwelcome but necessary.
“I know that higher interest rates are unwelcome for many people, especially those who have borrowed large sums of money lately,” he told a parliamentary committee.
“Higher interest rates are putting pressure on households just as higher gas prices and supermarket bills are putting pressure on budgets. So it is a difficult and worrying time for some people.
“However, the alternative of anchoring higher inflation would be even more difficult and would hurt our economic outlook.”
Some economists and experts have tipped interest rates to rise above 3 percent next year.
For more than three years, the RBA’s aggressive monetary tightening has resulted in the highest number of Aussie mortgage holders classified as at risk of mortgage stress since May 2019.
If interest rates are raised as predicted in October and November, that number will rise again to one in four mortgage holders under financial stress, the equivalent of 1.1 million people, Roy Morgan research found.
This would be the majority of mortgage holders classified as a risk group since July 2013, just over nine years ago.
House prices have also been hammered, with prices falling and an overall 20 percent decline forecast.
In Sydney, prices are down 9.1 percent from their February highs, while prices in Adelaide and Perth are down just 0.6 percent and 0.7 percent respectively.
It is feared that house prices could fall by as much as 43.5% by 2025 in the “worst case scenario” if the Reserve Bank of Australia continues to push through super-high rate hikes to address the worst inflation in three decades, it appears from an analysis.
This could mean Sydney’s average house price would fall from its peak of $1.41 million in 2022 to just $796,650 – down from $613,350 in just three years.
Sky-high interest rates have also hit borrowers hard with a dramatic drop in new home mortgages, which fell 8.5 percent in July and are 11.3 percent lower than the same time a year earlier.
PropTrack Senior Economist Eleanor Creagh said the fastest rate hike since 1994 has sent home prices down across the country, with prices now 3.35 percent below their March peak nationally.
“As borrowing capacity is limited and buyers’ budgets are shrinking, Sydney and Melbourne’s most expensive markets have led the price declines,” she added.
“Today’s rate hike will further increase borrowing costs and reduce maximum borrowing capacity, further driving down property prices. Over the coming period, the level of interest rates will be an important determinant of market conditions in the housing market and the pace and depth of house price declines.”