The Reserve Bank of Australia has slowed the pace of rate hikes, announcing a 25 basis point hike in interest rates on Tuesday.
But a sixth surge in as many months, taking the rate to 2.6% from a record low of 0.1%, is hitting Australians’ fanny packs hard.
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NAB was the first of the big four banks to adjust its variable rates on home loans, passing on the full Oct. 14 rate hike.
It made no immediate changes to interest rates on savings and time deposits.
“If you are concerned about the impact of rising interest rates, you have our full support,” said Rachel Slade, NAB Group’s executive for personal banking.
“Our home loan specialists can help you with a financial health check to ensure you’re getting the best interest rate for your situation, and our NAB Assist team is on hand for those who need additional help.”
Westpac followed suit, passing on the full 0.25 percent for variable mortgage rates.
She also increased several of her savings and time deposit accounts by as much as 0.25 percent.
Analysis by RateCity.com.au shows that the average borrower — an owner-occupier paying principal and interest with 25 years left — will pay $74 more a month on a $500,000 loan.
Since the RBA began raising interest rates in March, its monthly repayments have increased by about $687.
RBA Gov. Philip Lowe, explaining Tuesday’s hike, said uncertainty in the global economy was the main reason for the rise.
“One source of uncertainty is the outlook for the global economy, which has recently deteriorated. Another reason is how household spending in Australia is responding to tighter financial conditions,” he said.
“Higher inflation and higher interest rates are putting pressure on household budgets, with the full impact of higher interest rates still being felt on mortgage payments.
“Consumer confidence has also fallen and house prices are down after previous sharp increases. On the other hand, people are finding jobs, gaining more hours and earning higher wages.
“Many households have also built up large financial buffers and the savings rate is still higher than before the pandemic.”
He indicated that further rate hikes are likely as inflation will continue to creep up.
“Today’s further hike in interest rates will help bring about a more sustainable balance between demand and supply in the Australian economy. This is necessary to bring inflation back down.
“The Board anticipates that interest rates will continue to rise in the coming period. It closely monitors the global economy, household spending, and wage and price-setting behavior.
“The level and timing of future rate hikes will continue to be determined by incoming data and the board’s view of the inflation and labor market outlook.”
Treasurer Jim Chalmers said the rate hikes would be factored into his first budget, due in three weeks.
“Just because this is a little less than many people were expecting and just because it’s consistent with what we’re seeing around the world doesn’t make it that much easier for Australians to find room in their household budgets to accommodate the rising costs.” to cover the servicing of the mortgage,” he told reporters.
He said “storm clouds are gathering” in the global economy.
“First of all, the three most important contexts for the budget we are finalizing are rising inflation, rising interest rates and falling wages.
“Second, the global outlook is deteriorating. Storm clouds are gathering again in the global economy, and that doesn’t matter to us when we’re putting together our budget at home.
“Third, continued structural pressures on Australia’s budget in areas such as health, NDIS, defense and the rising cost of Commonwealth debt, but also as interest rates rise.”
He said the budget will be one that is “about tough decisions in tough times.”
RateCity.com.au Research Director Sally Tindall said the increases are increasing the cost of living for borrowers.
“The average borrower may soon be paying their bank an additional $760 a month in interest while their gas and grocery bills continue to climb,” she said.
“Borrowers should be aware that there is a two to three month lag between when the RBA raises the cash interest rate and when that additional money drains from their bank account.
“You might think you’ve successfully completed five RBA hikes when in fact you’ve only completed three, possibly even two.
“Calculate what your repayments will be after this latest hike, but also what they could achieve if the interest rate hits 3.60 percent.
“If you can, start making those higher repayments now so you know in advance you can afford them. If you can’t, start making cuts today.”
The hike comes as hundreds of thousands of Australians are already struggling to make their repayments.
Research by Roy Morgan last month found 854,000 borrowers faced mortgage stress after the first three rate hikes this year.
Excluding Tuesday’s hike, that number was estimated at about 942,000 people.
Roy Morgan CEO Michele Levine said more than 600,000 people were classified as “extremely vulnerable” to mortgage stress.
“It’s important to remember that interest rates are just one variable that determines whether a mortgage holder is considered ‘at risk,'” she said.
“The variable that has the greatest impact on whether a borrower falls into the “at risk” category is related to household income – which is directly related to employment.
“These numbers suggest that as long as employment levels remain high, the number of mortgage holders considered ‘at risk’ will not increase anywhere near the levels seen during the global financial crisis of August 9, 2007.”
Three of the four big banks forecast a larger increase in the key interest rate on Tuesday.
Only the Commonwealth Bank of Australia forecast a 0.25 per cent hike – the remaining three expect a 0.5 per cent hike.
Damien Roylance, chief executive of Entourage Finance, said homebuyers should “breathe with relief” at the smaller hike.
“Most major banks are predicting that cash will peak in November 2022 and remain stable, then fall into 2024,” he said.
“At least we can expect at least one more rate hike in November this year, based on current banks forecasts.
“Unfortunately, we’ll have to wait and see what impact these increases will have on inflation, which is the biggest indicator of what the RBA will do next.”
He said borrowers should expect variable rates on home loans of about 4.6 percent.
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