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.
Treasurer Jim Chalmers has warned that inflation will “get worse before it gets better” and that rate hikes are likely to become a “reality” over the coming months.
“That’s the brutal reality, unfortunately,” he said.
“A lot of people I talk to in Australia face the same diabolical set of circumstances, where the prices of everything are going up, people’s wages don’t hold up, it’s getting harder and harder for small businesses to function.
He said Australia was in a “difficult period” with flood disasters combined with financial pressures.
“The government is doing what it can, but really the only solution to this in the medium term is to try to build a budget and an economy that is as resilient as the Australian people themselves, and that is what we are working on.”
Treasurer Jim Chalmers has warned of a “brutal” economic reality over the coming months. (Getty)
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.”
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.”
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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.