Time to read : 3 Minutes
As expected, Tuesday, 4 October has seen another cash rate hike from the Reserve Bank but there's a twist: it only went up by 0.25% rather than the half a percent point many had anticipated.
Homeowners with a variable rate mortgage can still expect their lender to pass on the increase, although monthly repayments won't rise as much as expected.
đ” At 0.25%, it's the sixth cash rate increase in as many months, and bank economists are predicting that the rates will keep rising until the cost of living goes down.
đ The cash rate is now 2.60%. The last time it was this high was nine years ago, when the standard home loan interest rate was 6.18%.
đ Compare Club's home loans team estimate on an average mortgage of $600K homeowners are now likely to be paying $874 more a month than back in April.
In announcing the lower-than-expected rate rise today the RBA said:
"One source of uncertainty is the outlook for the global economy, which has deteriorated recently. Another is how household spending in Australia responds to the tighter financial conditions. Higher inflation and higher interest rates are putting pressure on household budgets, with the full effects of higher interest rates yet to be felt in mortgage payments."
Loan amount | Payment pre-rate-rise (April 2022) | October rate rise .25% | Difference | Yearly increase |
|---|---|---|---|---|
$600K | $2,306 | $3,180 | $874 | $10,488 |
$750K | $2,882 | $3975 | $1093 | $13,116 |
$850K | $3,226 | $4506 | $1280 | $15,360 |
$1M | $3,843 | $5301 | $1458 | $17,496 |
*Based on April starting rate of $2.29%, monthly repayments over a 30 year term. Numbers have been rounded.
Home Loan interest rates: you ask, we answer
đïžSo what does the outlook like like for homeowners for the rest of the year? Our Home Loans Expert Sophie Matthews tackles your top RBA rate hike questions:
Is the RBA done with cash rate hikes? This is definitely not the latest of the cash rate hikes. Expect more to come before the end of the year, so homeowners who haven't yet reviewed their mortgage should act sooner rather than later.
How much higher will they go? It depends on if the RBA thinks it has got inflation under control. Last month, the predictions were that Australia would see rate increases until the end of the year. Now some economists are predicting they will continue until February 2023.
Is there any good news? Yes there is. The Australian Bureau of Statistics released figures last week suggesting inflation had stabilised a between July and August. But it's still much higher than the RBA would like it to be, as is consumer spending. So don't expect the RBA to stop putting up the cash rate anytime soon.
Are there any good deals still? There are, in fact many lenders are starting to drop fixed rates and even tweak variable rates for new customers. Ultimately, they still want your business and for homeowners it means it's highly likely that there's a few attractive loans that you can access. There are competitive rates still available.
đ The lowest variable rate on Compare Club's panel is currently 3.64%. But this really is a time when homeowners need some expert help â don't just do the research yourself. A good broker will have access to loans that you might not be able to find by Googling.
The bottom line
The good news is this rate rise is lower than expected, indicating that the RBA is monitoring the market very carefully. They are however determined to bring our inflation rate down to their target of 2-3%, so until that happens more rate rises are still likely.
If your fixed rate mortgage expires within the next six months, it's a very good idea to start considering all of your options so you end up rolling onto a very expensive variable rate.
Variable rates are currently cheaper than fixed but some lenders have started dropping fixed rates for new customers and existing ones who negotiate for it.
The reality is the serviceability buffer your lender built in for you has now been eaten up by the rate rises â and the increases are going to bite.
Be aware: what you (or anyone) could borrow six months ago has changed a lot.
 "Our brokers have definitely noticed that borrowing capacity has reduced over the past month. Homeowners can still get approved for loans, but potentially not the loans that they were hoping for. It's a combination of things, such as APRAs restrictions well and truly established, plus lenders are less likely to take any kind of risk."
- Anthony Stevenson, Home Loan Broker Compare Club.
