Urgent warning to NAB, ANZ, Westpac and Commonwealth bank customers


Australian home borrowers face the biggest annual interest rate surge in almost three decades but if history is any guide, it may not bring down inflation.

This could see a borrower with a typical $600,000 mortgage owe an extra $713 a month in repayments within a year from now, as consumer prices keep skyrocketing.

If the experience of 1994 repeats itself, inflation would double within a year despite a steep increase in the Reserve Bank of Australia cash rate. 

ANZ and Westpac have now updated their forecasts to have the RBA cash rate hitting 2.25 per cent by May 2023 – a level unseen since May 2015.

The RBA on Tuesday raised rates by 0.25 percentage point from a record low of 0.1 per cent to 0.35 per cent – the highest since March 2020 when the pandemic began.

That means a forecast 2.15 percentage point increase in one year, via seven more Reserve Bank rate rises, would mark the steepest annual increase since 1994.

Australian home borrowers face the biggest annual interest rate surge in almost three decades but if history is any guide, it may not bring down inflation. This could see a borrower with a typical $600,000 mortgage owe an extra $713 a month in repayments within a year from now, as the consumer prices keep skyrocketing (pictured is home on the market at McMahons Point on Sydney’s lower north shore)

Rate rises and inflation in 1994 versus 2022

1994: Reserve Bank cash rate rose by 2.75 percentage points from 4.75 per cent to 7.5 per cent between August and December

Inflation doubled from 2 per cent in September quarter of 1994 to 5.1 per cent by September quarter of 1995

2022: Westpac and ANZ are expecting the RBA cash rate to rise by 2.15 percentage points from a record-low of 0.1 per cent to 2.25 per cent

Inflation in March quarter was 5.1 per cent – fastest pace in 21 years 

The cash rate that year rose by 2.75 percentage points – from 4.75 per cent to 7.5 per cent – between August and December 1994.

When Paul Keating was Labor prime minister, the Reserve Bank then led by Bernie Fraser raised the cash rate by one whole percentage point in October and December 1994. 

Back then, inflation stood at an annual pace of just 2 per cent in the September quarter of 1994 but within a year, it doubled to 5.1 per cent.

Mr Keating abandoned his promised ‘L-A-W law’ income tax cuts and went on to lose the March 1996 election in a landslide to Liberal leader John Howard, ending 13 years of Labor rule. 

In 2022, Westpac chief economist Bill Evans is expecting a 0.4 percentage point increase in June – marking the biggest monthly increase since February 2000.

Inflation in the year to March surged by 5.1 per cent – the fastest annual pace since mid-2001 after the introduction of the GST kept consumer prices high for a year.

Russia’s Ukraine war pushed up global crude oil prices, and saw average Australian petrol prices climb above $2 a litre in March until the federal government temporarily halved the fuel excise. 

ANZ and Westpac have now updated their forecasts to have the RBA cash rate hitting 2.25 per cent by May 2023 - a level unseen since May 2015. A 2.15 percentage point rise in one year would mark the biggest annual increase since 1994 (pictured is the Sydney Harbour Bridge)

ANZ and Westpac have now updated their forecasts to have the RBA cash rate hitting 2.25 per cent by May 2023 – a level unseen since May 2015. A 2.15 percentage point rise in one year would mark the biggest annual increase since 1994 (pictured is the Sydney Harbour Bridge)

When Paul Keating (pictured on May 5 with Opposition Leader Anthony Albanese) was Labor prime minister, the Reserve Bank then led by Bernie Fraser raised the cash rate by one whole percentage point in October and December 1994. The cash rate that year rose by 2.75 percentage points - from 4.75 per cent to 7.5 per cent - between August and December 1994

When Paul Keating (pictured on May 5 with Opposition Leader Anthony Albanese) was Labor prime minister, the Reserve Bank then led by Bernie Fraser raised the cash rate by one whole percentage point in October and December 1994. The cash rate that year rose by 2.75 percentage points – from 4.75 per cent to 7.5 per cent – between August and December 1994

Big Four banks update RBA rate forecasts

WESTPAC: 2.25 per cent cash rate by May 2023

NAB: 2.6 per cent cash rate by August 2024

ANZ: 2.25 per cent by May 2023

COMMONWEALTH BANK: 1.6 per cent by February 2023

Source: RateCity 

An increase in the cash rate to 2.25 per cent by May 2023, as forecast by Westpac and ANZ, would also take variable mortgage rates to 4.44 per cent, up from 2.29 per cent under a record-low 0.1 per cent cash rate.

A typical Australian borrower with a $600,000 mortgage would see their monthly repayments surge by $713 from $2,306 to $3,019.

Reserve Bank of Australia Governor Philip Lowe on Tuesday hinted the cash rate could go even higher to 2.5 per cent. 

CommSec chief economist Craig James said surging inflation was overwhelming the RBA.

‘It is clear from the statements from the Reserve Bank on Tuesday that the latest inflation results have come as a shock,’ he said.

‘Not only has inflation exceeded RBA forecasts, it has “significantly” exceeded those forecasts.’

Prime Minister Scott Morrison is also the underdog in opinion polls with inflation on the high side, like it was during the mid-1990s when Mr Keating was in power.

The major difference with 28 years ago is the much higher debt-to-income ratio for real estate, which means the RBA won’t need to raise rates as high to curb consumer spending.

In 1994, Sydney’s median house price was $192,375 and the average, full-time salary stood at $32,755.

With a 20 per cent deposit, a borrower paying off a $153,900 mortgage had a debt-to-income ratio of 4.7.

In 2022, Sydney’s median house price is $1.417million, based on CoreLogic data for April, and the average, full-time salary is $90,917.

With a 20 per cent deposit, a borrower paying off a $1.134million mortgage would have a debt-to-income ratio of 12.4.

CommSec chief economist Craig James said surging inflation was overwhelming the RBA (pictured is an auctioneer at Hurlstone Park in Sydney last year)

CommSec chief economist Craig James said surging inflation was overwhelming the RBA (pictured is an auctioneer at Hurlstone Park in Sydney last year)

How YOUR mortgage repayments could surge under a 2.25 per cent cash rate

$500,000: Monthly repayments rising by $594 from $1,922 to $2,516

$600,000: Monthly repayments rising by $713 from $2,306 to $3,019

$700,000: Monthly repayments rising by $831 from $2,691 to $3,522

$800,000: Monthly repayments rising by $951 from $3,075 to $4,026

$900,000: Monthly repayments rising by $1,070 from $3,459 to $4,529

$1,000,000: Monthly repayments rising by $1,189 from $3,843 to $5,032

Calculations based on variable mortgage rates rising from 2.29 to 4.44 per cent in line with the cash rate increasing by 2.15 percentage points from a record-low of 0.1 per cent to 2.25 per cent

Read more at DailyMail.co.uk