Australians with a $600,000 mortgage are set to see their monthly repayments skyrocket $500 by Christmas – with the biggest rate increase since 2000 predicted.
The highest inflation in 21 years on Tuesday saw the Reserve Bank of Australia raise interest rates for the first time since November 2010.
Economists at Australia’s second biggest bank are now expecting the RBA to raise the cash rate seven more times in the coming year, with five of those increases predicted by the end of 2022.
While Tuesday’s 0.25 percentage point increase in the cash rate was bigger than market expectations of a 0.15 percentage point rise, home borrowers are expected to suffer even more severe pain in June.
Westpac chief economist Bill Evans is forecasting a much larger 0.4 percentage point increase next month, which would be the biggest monthly rise in the RBA cash rate since February 2000.
Australians with a typical $600,000 home loan are set to see their monthly mortgage repayments skyrocket by more than $500 before Christmas (pictured is a woman at a Melbourne auction)
Westpac forecasts more pain to come
JUNE: Up 0.4 percentage points
JULY: Up 0.25 percentage points
AUGUST: Up 0.25 percentage points
OCTOBER: Up 0.25 percentage points
NOVEMBER: Up 0.25 percentage points
FEBRUARY: Up 0.25 percentage points
MAY: Up 0.25 percentage points
A high wage price index for the March quarter, due out on May 18, could trigger an even bigger-than-usual rate rise, amid fears the steepest increase in pay levels since 2009 could make inflation worse.
‘A larger increase in the cash rate than 25 basis points is likely to be seen by the Board as necessary to convince agents that it is serious about the challenge and to accelerate the unwinding of the emergency measures that saw 65 basis points of rate cuts in 2020,’ Mr Evans said.
In a sign of a tight labour market, the number of jobs advertised on Seek rose by 22.5 per cent in the year to April.
Inflation is also set to worsen with Australian Bureau of Statistics data showing a record 1.6 per cent increase in retail turnover in March.
After the Covid pandemic sparked national lockdowns in March 2020, the RBA slashed the cash rate three times from 0.75 per cent, taking it to a record-low of 0.1 per cent by November that year.
But in the year to March, inflation soared by 5.1 per cent – the fastest annual pace since June 2001 a year after the 10 per cent GST was introduced.
Russia’s Ukraine invasion caused petrol prices to surge by 11 per cent, the most dramatic annual increase since 1990 when Iraq invaded Kuwait.
Mr Evans is now expecting the Reserve Bank to raise interest rates in June, July, August, October and November, taking the cash rate from 0.35 per cent, following the May rise, to 1.75 per cent by the end of 2022.
The highest inflation in 21 years on Tuesday saw the Reserve Bank of Australia raise interest rates for the first time since November 2010. Economists are now expecting the RBA to raise the cash rate seven more times in the coming year, with five of those increases predicted by the end of 2022 (pictured is a woman choosing yoghurt at Woolworths in Sydney in 2011 shortly after the last RBA rate rise)
A borrower with a typical $600,000 mortgage would now be paying a 2.29 per cent variable rate until next week, when their new variable bank rate rise kicks in.
Based on the cash rate increasing from 0.1 per cent to 1.75 per cent by year’s end – a level unseen since August 2016 – their mortgage rate would rise to 3.94 per cent.
This would see their monthly repayments climb by $538 from $2,306 now to $2,844 by November.
This would affect someone with a 20 per cent deposit who has just bought a median-priced home that was worth $748,635 in April, going by CoreLogic data.
The average new Australian mortgage stood at $595,873 in February while the buyer of a mid-price home last month would have borrowed $598,908.
But in Sydney and Melbourne, where houses typically have values in the seven figures, a couple borrowing $1million could, by November, see their monthly mortgage repayments climb by $897 from $3,843 to $4,740.
The Big Four banks have all passed on the official interest rate rise in full to their home loan customers with National Australia Bank the last to act.
NAB borrowers will see their variable mortgage rate rise on May 13, following a Wednesday morning announcement it would raise lending rates by 0.25 percentage points.
Commonwealth, Westpac, and ANZ on Tuesday night announced their variable home loan rates would increase by 0.25 percentage points, in line with the RBA’s quarter of a percentage point move.
Westpac chief economist Bill Evans is forecasting a much larger 0.4 percentage point rte increase next month, which would be the biggest monthly increase in the RBA cash rate since Februart 2000 (pictured is a Brisbane auction)
How the banks have responded to RBA rise
Commonwealth Bank: 0.25 percentage point increase from May 20, exactly matching the official interest rate rise.
ANZ Bank: 0.25 percentage point increase from May 13, in line with the official rate rise
Westpac/St George: 0.25 percentage point increase from May 17, the same as the RBA’s increase.
National Australia Bank: 0.25 percentage point increase from May 13, following cash rate rise
That means the lowest variable rates with CBA, NAB and ANZ are rising from 2.19 per cent to 2.44 per cent, while Westpac’s increases from 2.09 per cent to 2.34 per cent.
But more customers would previously have been paying the slightly higher 2.29 per cent variable rate, with less strict conditions on credit card use, with those rates at three of the Big Four banks rising to 2.54 per cent.
CBA customers will cop an increase to home loan repayments from May 20, while ANZ’s rate rise is effective a week earlier, from May 13 and Westpac’s begins on May 17.
Westpac, ANZ and NAB are expecting the cash rate to hit two per cent by 2023.
This would see the RBA raise interest rates seven times, something which hasn’t been done since 2009 and 2010 after the Global Financial Crisis.
But Reserve Bank Governor Philip Lowe on Tuesday hinted the cash rate could hit 2.5 per cent by late 2023.
Mr Evans said the RBA would raise rates again in February and May, which would take the cash rate to 2.25 per cent.
‘That will be a level where the household balance sheet will come under some strain and the subsequent movements by the Board will be much more cautious,’ he said.
Underlying measures of inflation, stripping out big price moves like petrol, are also on the high side, and at levels well above the RBA’s two to three per cent target.
How much MORE you could be paying by Christmas
$500,000: Monthly repayments rising by $448 from $1,922 to $2,370
$600,000: Monthly repayments rising by $538 from $2,306 to $2,844
$700,000: Monthly repayments rising by $627 from $2,691 to $3,318
$800,000: Monthly repayments rising by $717 from $3,075 to $3,792
$900,000: Monthly repayments rising by $807 from $3,459 to $4,266
$1,000,000: Monthly repayments rising by $897 from $3,843 to $4,740
Data based on variable rate rising from 2.29 per cent to 3.94 per cent before the Reserve Bank of Australia raised the cash rate