Australia’s housing market was already in freefall before the latest interest rate hikes, with loan approvals plunging.
A dramatic fall in the value of new mortgages is occurring as economists predict property prices in Australia will ultimately drop 20 per cent from their peak, with interest rates in November rising for the seventh straight month.
The Commonwealth Bank and Westpac on Wednesday became the second and third big banks to raise their variable mortgage rates to reflect the Reserve Bank of Australia’s latest 0.25 percentage point rate hike – taking the cash rate to a new nine-year high of 2.85 per cent.
CBA, Australia’s biggest home lender, announced its variable rates would increase on November 11, a day after NAB announced its mortgage rates would also go up on that day.
Australia’s housing market was already in freefall before the latest interest rate hikes with loan approvals plunging. New mortgages for owner-occupier borrowers plummeted by 9.3 per cent in September (pictured is a Melbourne house)
Angus Sullivan, the Commonwealth Bank’s group executive of retail banking, acknowledged some borrowers would struggle with yet another increase.
What a 0.25 percentage point rate rise means
$500,000: Up $75 to $2,621 from $2,546
$600,000: Up $90 to $3,145 from $3,055
$700,000: Up $105 to $3,669 from $3,564
$800,000: Up $120 to $4,193 from $4,073
$900,000: Up $135 to $4,717 from $4,582
$1,000,000: Up $150 to $5,241 from $5,091
Monthly repayment increases based on a Commonwealth Bank variable loan rising to 4.79 per cent from 4.54 per cent to reflect Reserve Bank of Australia cash rate rising to 2.85 per cent from 2.6 per cent
‘We understand the rapidly changing rate environment may raise questions for some of our customers and we are here to help them,’ he said.
New mortgages for owner-occupier borrowers, who live in their home rather than rent it out, plummeted by 9.3 per cent in September, the Australian Bureau of Statistics revealed on Wednesday.
They fell over four consecutive months in June, July, August and September.
Overall home loan commitments, covering both owner-occupiers and investor landlords, fell by 8.2 per cent in September.
Investor loan commitments fell six per cent.
The latest data was released a day after the Reserve Bank of Australia raised the cash rate by another 0.25 percentage points to a new nine-year high of 2.85 per cent.
The seventh consecutive monthly increase was the most in a row since the RBA began publishing a target cash rate in 1990.
The latest increase means a popular Commonwealth Bank variable loan will rise by 25 basis points to 4.79 per cent on November, up from 4.54 per cent.
This will see a borrower with an average $600,000 loan see their monthly repayments climb by $90 to $3,145 next week, up from $3,055.
As recently as May, this borrower’s repayments were at $2,306 under a 2.29 per cent variable rate, with the latest increase meaning a $839 surge in mortgage repayments in just six months.
The Commonwealth Bank (Melbourne branch) on Wednesday became the second big bank to raise its variable mortgage rates to reflect the Reserve Bank of Australia’s latest 0.25 percentage point rate hike – taking the cash rate to a new nine-year high of 2.85 per cent
Westpac later on Wednesday afternoon announced that it too would pass on the RBA’s latest increase, making it the third major bank to do so.
That 0.25 percentage point increase comes into effect on November 9, which will see a comparison variable rate rise to 4.82 per cent from 4.57 per cent.
Despite the increases, Westpac’s group executive of consumer and business banking Chris de Bruin said there hadn’t been an increase in calls for help.
‘With interest rates continuing to rise, we understand some people will be feeling more financial pressure,’ he said.
‘While we have not seen an increase in calls for assistance, and the majority of our customers continue to be ahead on repayments, we are ready to support customers who may need extra help.’
The RBA’s 2.75 percentage point increases since May is equal to the level of tightening in 1994.
AMP Capital is predicting a 15 to 20 per cent plunge in Australian property prices from the peaks of 2022.
Senior economist Diana Mousina said upcoming data was likely to show a further fall in new loans.
‘Further declines in home lending are expected as interest rates lifted again in October and November and another rate rise is expected in December,’ she said.
Westpac senior economist Matthew Hassan said soaring building costs in particular were turning off potential owner-occupier borrowers (pictured is a Melbourne residential construction site)
Westpac senior economist Matthew Hassan said soaring building costs in particular were turning off potential owner-occupier borrowers.
House prices fall in EVERY capital city
BRISBANE: Down 2.2 per cent to $817,684
SYDNEY: Down 1.5 per cent to $1,257,625
CANBERRA: Down 1.1 per cent to $990,851
HOBART: Down 1 per cent to $754,640
MELBOURNE: Down 0.9 per cent to $924,492
DARWIN: Down 0.9 per cent to $588,053
ADELAIDE: Down 0.5 per cent to $706,154
PERTH: Down 0.2 per cent to $584,232
Source: CoreLogic data on median house prices in October 2022
‘Interest rate rises and a steep rise in building costs are starting to impact new building activity,’ he said.
The Reserve Bank on Tuesday forecast inflation in 2022 hitting a new 32-year high of 8 per cent.
The September quarter’s 7.3 per cent annual inflation rate was the highest since the March quarter of 1990.
Governor Philip Lowe is also expecting inflation to remain above the RBA’s two to three per cent target into 2024.
‘I understand that the higher interest rates that are needed to bring inflation under control are unwelcome by many people, especially those who have borrowed large amounts over recent times,’ he told a Hobart dinner on Tuesday night.
‘At our meeting, we discussed how the higher interest rates are putting pressure on family budgets, just at the time that high petrol prices and grocery bills are also squeezing budgets.
‘We are conscious of this and are certainly taking it into account.’
Sydney is Australia’s most interest-rate sensitive market with the median house price in October falling by another 1.5 per cent to $1,257,625, CoreLogic data showed.
Prices have fallen by 10.6 per cent since the start of the year.
But despite that, the mid-point price means a borrower with a 20 per cent deposit would still have a $1million mortgage.
An average, full-time worker on $92,030 would have a debt-to-income ratio of 10.9.
This is significantly higher than the Australian Prudential Regulation Authority’s six threshold for mortgage stress.