A group of Australians could lose hundreds of dollars by the end of the year as the country’s financial crisis really begins to bite.
Australia’s interest rate nightmare could see homeowners swoop in on an extra $443 a month from Christmas, startling new data has revealed.
On May 3, the Reserve Bank of Australia announced the first official interest rate hike since 2010, revealing that it would raise the cash rate by 25 basis points to 0.35% from 0.1%.
The historic rate hike was announced in response to soaring inflation, which hit an annual rate of 5.1% and drove prices up at the fastest pace in two decades.
It also marked the first rate hike in an election campaign since 2007, when John Howard was beaten by Kevin Rudd.
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However, experts have repeatedly warned that May’s rate hike was just the tip of the iceberg, with the Reserve Bank of Australia warning that more interest rate hikes were on the horizon. .
In fact, new details from the RBA board meeting in May prompted the Commonwealth Bank to sound the alarm over impending rate hikes this week, forecasting rate hikes of 25 basis points. base in June, July, August and November 2022 and February 2023, with the cash rate expected to remain at 1.60% for the remainder of 2023.
Meanwhile, technical assumptions from RBA board minutes show the cash rate could rise to 1.75% by the end of the year and reach 2.5% by the end of 2023.
Economists predict that could potentially include a 0.40 percentage point hike next month.
New analysis by comparison site RateCity has found that the average variable homeowner with a $500,000 loan over 25 years with principal and interest could see their monthly repayment increase by an additional $106 if the RBA raises the cash rate 0.40 percentage point in June.
But the pain gets worse later in the year, with RateCity predicting that the same borrower would pay $443 more each month on their repayments by Christmas if the cash rate hit 1.75% as expected – a number that is rising skyrocketing to $651 per month. if the cash rate reaches 2.50% by the end of 2023.
At a recent press conference, RBA Governor Lowe expressed his “hope” that a cash rate of around 2.5% would be both neutral and achievable.
But RateCity.com.au research director Sally Tindall said no one knew how much the cash rate would rise, it was almost certain there would be “a lot more” in the coming months.
“The average borrower is potentially looking at the full $651 hike in their monthly repayments by the end of next year. It’s like buying a new dishwasher every month,” she said.
“Sit down and figure out what your refunds will look like, even if your rate has gone up 3%. If you don’t think you can make those higher repayments, act now.
“The longer you wait to make changes, the more difficult you will find yourself.”
Banks react to rate hike
All of Australia’s banking behemoths reacted to this month’s historic rate hike within hours.
The Commonwealth Bank was the first to respond to the RBA bombshell, matching the RBA and raising its variable interest rates on home loans by 0.25%.
The CBA, which is Australia’s largest bank and holds a quarter of all home loans in the country, said the increase would come into effect on May 20.
ANZ followed suit shortly after the CBA, announcing that it would also pass on the full amount to home loan customers from May 13.
Westpac later announced that it would also track and increase variable home loan interest rates by 0.25% for new and existing customers from May 17.
And the day after the announcement, NAB became the latest ‘big four’ banks to respond, confirming that its standard variable home loan plus bonus savings-reward interest rate would increase by 0.25% from of May 13.
Prior to the RBA announcement, ANZ, NAB and Westpac all predicted a 0.15% rise in early May, while Commonwealth Bank expected a rate hike in June once the federal election is behind us.
All four were caught off guard by the central bank’s decision to raise the policy rate by 25 basis points, a scenario few insiders saw coming.