Australian home borrowers have weathered the fifth straight monthly rate hike, with the Reserve Bank imposing a further hike of 0.5 percentage point.
The recent 50 basis point jump in the cash rate takes it to a seven-year high of 2.35 percent, versus an existing six-year high of 1.85 percent.
The RBA has raised interest rates for the fifth straight month since it began publishing a target rate in 1990.
Borrowers have absorbed rate hikes of 2.25 percentage points in May, June, July, August and now September – the steepest series of rises in a calendar year since 1994.
Reserve Bank Governor Philip Lowe said this is far from the last rate hike during this monetary tightening cycle, as inflation is expected to hit a new 32-year high in 2022 as consumers continue to spend.
“The board expects to raise interest rates further in the coming months, but it is not on a preset path,” he said on Tuesday.
‘The size and timing of future rate hikes will be guided by incoming data and the Board’s views on the inflation and labor market outlook.’
Australian home borrowers have weathered the fifth straight monthly rate hike, with the Reserve Bank imposing a further hike of 0.5 percentage point. A 50 basis point hike in interest rates takes it to a seven-year high of 2.35 percent, versus a existing six-year high of 1.85 percent
A borrower with an average $600,000 mortgage now faces a $173 increase in monthly mortgage payments as the central bank battles the worst inflation since 1990 and borrowers grapple with the highest cash rates since February 2015.
What another 0.5 percentage point rate hike in September will mean
$500,000: Increase by $145 to $2,472 from $2,327
$600,000: Up $173 to $2,966 from $2,793
$700,000: Increase by $202 to $3,460 from $3,258
$800,000: Increase by $231 to $3,955 from $3,724
$900,000: Increase by $260 to $4,449 from $4,189
$1,000,000: Increase of $289 to $4,943 from $4,654
Calculations are based on a policy rate rising from 1.85 percent to 2.35 percent, which would mean a rise in a popular Commonwealth Bank variable from 3.79 percent to 4.29 percent
The latest increase means this borrower’s monthly mortgage payments would have increased by $573 since early May, with the cost of servicing home loans likely to rise from $2,793 to $2,879 in the coming weeks — as a popular one variable interest rate climbed from 3.79 percent to 4.29 percent.
Just four months ago, repayments were $2,306 when cash rates were at a record low of 0.1 percent and the Commonwealth Bank was still offering variable mortgage rates of 2.29 percent.
That comes just three weeks before the fuel consumption tax doubles again to 44.2 cents a liter, which could push average unleaded gasoline prices back above $2 a liter from September 29.
Labor Prime Minister Anthony Albanese and Treasurer Jim Chalmers have both indicated they will not go ahead with the former coalition government’s six-month halving of excise duties to 22.1 cents a liter at a cost of $3 billion.
Australia’s Competition and Consumer Commission, tasked with rooting out price-gouging, found that average petrol prices were still up to $2.10 a liter in June despite the halving of excise duties on higher crude oil prices.
Gina Cass-Gottlieb, the chair of the ACCC, noted that despite the excise duty cut, prices still hit a 14-year high and feared gasoline dealers could struggle in three weeks.
“We will be in touch with fuel wholesalers and retailers shortly to say that we do not expect any uncharacteristic or unusual wholesale and retail price increases in the days leading up to, on the day of or after the reintroduction of the full rate of fuel tax,” she said.
The Commonwealth Bank, Australia’s largest home lender, expects the RBA to hike rates by less than 0.25 percentage point to 2.6 percent in November.
The RBA has now raised interest rates for the fifth straight month since it began publishing a target interest rate in 1990. Fastest rise in a calendar year since 1994 (houses in Paddington, Brisbane shown)
Inflation rose 6.1 percent in the year to June, the steepest increase since 1990, when the one-off effect of GST implementation in 2000 was factored out.
That was more than double the wage price index of 2.6 percent, meaning most workers are effectively suffering from a cut in real wages as inflation rises more than twice as fast as wages.
An unemployment rate of just 3.4 percent in July, the lowest since August 1974, has so far failed to translate into broader wage increases, although employers are struggling to hire staff, but the RBA is watching for signs of rising wage inflation.
An Australian earning an average full-time salary of $92,030 is now unable to obtain an average $600,000 loan from the banks required to assess a potential borrower’s ability to work with a Rise in adjustable mortgage rates by three percentage points to cope.
The average home price in Australia fell 1.6 percent to $738,321 in August, the sharpest monthly decline since January 1983, CoreLogic data showed.
Borrowers aren’t the only ones having a hard time as variable mortgage rates soar and rents soar by double digits from the city center to the outer suburbs.
In the three months to early September, weekly rents in the city of Sydney rose 12.9 percent, or $98, to $860.81, data from SQM Research showed.
This comes just three weeks before the fuel consumption tax will double again to 44.2 cents per liter, which could push average unleaded gasoline prices back above $2 per liter starting September 29 (shown is a archive image).
The outer suburbs are also absorbing double-digit rent increases, with renters in Liverpool, 38km south-west of the city centre, raising their quarterly rent by 10.1 per cent, or $43 per week, to $478.66 in an area with a scarce 1.0% vacancy rate .3 percent increase.
Everybody’s Home spokeswoman Kate Colvin said massive rent increases coincided with soaring food and gas costs.
“This is a social disaster and an economic disaster, with the double whammy of record low vacancy rates and skyrocketing rents making it impossible to find alternative, more affordable housing,” she said.
“Modest-income renters are bearing the cost of the national inflation challenge.
“It’s both unfair and unwise.”
But rate hikes haven’t hurt consumer activity so far, as Australia’s Bureau of Statistics reported an 18.4 percent increase in spending in July.
dr Lowe said he was concerned that recent rate hikes have failed to slow consumer spending as the policy rate is still below the neutral level of 2.5 percent.
“An important source of uncertainty continues to be household spending behavior,” he said.
“Higher inflation and higher interest rates are putting pressure on household budgets, with the full impact of higher interest rates still being felt on mortgage payments.”
However, subsequent rate hikes in August and September could weigh on those who haven’t had to rein in spending yet.