Australian mortgage borrowers are preparing for the family budget to tighten even further as another rise in interest rates approaches this afternoon.
Australia’s official cash rate target is currently 0.85%, having risen 50 basis points in June.
The Reserve Bank of Australia (RBA) is widely expected to raise rates by a similar amount at 2.30pm to try to cope with rising inflation levels.
If the RBA raises the cash rate by another 50 basis points, the average homeowner with $ 500,000 in debt and the remaining 25 years will see their repayments increase by $ 137.
According to RateCity.com.au, the same borrower would have already suffered an increase of $ 333 a month from where interest rates were before May 2022.
“Australians are potentially looking at the barrel of RBA’s steepest climbs since 1994,” said the site’s research director, Sally Tindall.
“Variable-rate borrowers should prepare for another 0.50 percentage point rise this month and potentially another double rise in August.
“This would be a bold move by the Reserve Bank, but not at odds with the actions other central banks are taking to curb inflation.
“Governor Lowe could have poured cold water with suggestions that the cash rate could reach 4% by Christmas, but the RBA is likely to rip the bandage off quickly.”
Reserve Bank of Australia Governor Philip Lowe has indicated he will do whatever it takes to control inflation. (Graphic: Tara Blancato)
So how far could interest rates go?
According to Westpac’s latest forecast, the cash rate could rise to 2.35% by the end of 2022 and reach 2.60% early next year.
If this forecast is met, the same borrower used in the previous examples could see how their monthly repayments will increase by $ 685 in less than 12 months.
Canstar finance expert Steve Mickenbecker said increases in mortgage payments were just one factor to squeeze to the last dollar of many family budgets.
House prices have already begun to fall after the first rise in interest rates in May. (Flavio Brancaleone)
“Two out of five Australians expect to face a bill or loan payment in the next six months that they will not be able to pay,” Mickenbecker said.
“The most worrying thing is that almost half of those struggling to meet their bills will partially pay their bills or borrow from family and friends, which shows that there is a high level of despair in people’s planning in when dealing with the cost of the day to … daily life.
“Hopefully one in five who plans to increase their credit card debt will be able to overcome it when salary increases finally start to catch up, as the Reserve Bank expects.
“If the prospects of wage increases are too far-fetched, rising living expenses and loan repayments will reach a crisis level, particularly for recent borrowers.”
The 10 richest people in Australia in 2022 were revealed
The RBA will issue its July monetary policy decision at 2.30pm this afternoon. You can see the decision as it is posted live on nine.com.au and 9News.com.au