Reserve Bank interest rates: A bleak prognosis for millions of Australian homeowners as the RBA predicted an interest rate hike in 2023

The Reserve Bank of Australia predicts 800,000 Australian households could be in for a rude awakening when their fixed interest rate expires this year.

Marion Kohler, head of the RBA’s economic analysis department, said on Senate Estimates this week that the “back-of-the-envelope” calculations paint a bleak outlook for hundreds of thousands of households.

WATCH THE VIDEO ABOVE: Australian homeowners are expected to be hit by another four rate hikes.

The RBA has raised the cash rate to 3.1 percent from a pandemic record low of 0.1 percent since last May.

The board is due to meet again on Tuesday, where economists are largely predicting another 0.25 percent hike.

Borrowers who have their mortgages fixed for two years in 2021 are most at risk if they expire sometime this year.

Kohler said “somewhere in the high 800,000” is how many mortgages face that reality.

“That’s not necessarily 800,000 households, that’s people who have more than one credit facility,” she said at the Senate hearing.

“Roughly a third of the home loan is fixed rate and we believe half of that will expire in the coming year.

“That’s a pretty tough question to answer.”

If predictions of continued hikes come true, some Australian borrowers will be paying more than $1,000 a month in mortgage payments than before the RBA hikes began.

While other pundits say the estimate is on the murkier end of the scale, they agree the RBA is very likely to raise interest rates to 3.35 percent next week to curb inflation.

Australia’s annual inflation rate hit a 30-year high of 7.8 percent in the December quarter and the RBA expects it to rise further in the coming months, according to its December announcement.

While inflation is expected to ease this year, RateCity forecasts that borrowers will “almost certainly” face another rate hike in February, marking the ninth hike in as many meetings.

Commsec’s Craig James agreed, telling Sunrise that the bank expects interest rates to hit 3.35 percent next week.

After that, however, the RBA will likely take a pause to assess the economy, he said on Tuesday.

“I think Deutsche Bank is at the dark end of the forecast,” James said.

“You have to remember; We had eight rate hikes in a row.

“We went from 0.1 percent to 3.1 percent in super fast time, we’ve never seen an aggressive reserve bench like this before.

“At some point it has to slow the economy, and by our calculations, consumer spending is already starting to slow.”

If the RBA raises interest rates to 3.35 percent — an increase of 25 basis points — it would hit its highest policy rate since September 2012.

The change would mean the average borrower with a $500,000 loan before May last year could pay a total of $908 more a month, according to RateCity’s analysis.

An average borrower with a $750,000 or $1 million loan could be paying $1,362 or $1,816 more in monthly repayments than they did before May.

“Don’t stick your head in the sand”

The big four banks expect the RBA to hike 25 basis points in February, but when interest rates will finally peak remains a contentious question.

The Commonwealth Bank is expecting a top of 3.35 percent next month, while ANZ, NAB and Westpac are all pointing out that further increases could be on the horizon.

NAB is forecasting a peak of 3.6 percent for March, while Westpac and ANZ say 3.85 percent for May.

RateCity Research Director Sally Tindall said Australia’s serious inflation problem left the RBA little choice but to serve up another rate hike.

“After a pause in January, the RBA is unlikely to freeze interest rates for two straight months,” she said.

“Australians are now looking at the barrel of the ninth rate hike since May last year.”

For those with a home loan, Tindall said it’s time to get their finances in order.

“Don’t stick your head in the sand. Now is the time to review your budget to make sure you can cover those higher repayments before they happen.”