‘Avalanche of rate rises’ to cost borrowers more than $3,000 this year
Posted On April 4, 2022
Experts are now predicting not one but an “avalanche of rate rises” from Australia’s Reserve Bank that would cost the average borrower more than $3000 this year.
Several of the major banks have forecast a lift in the official cash rate – which remains at the historically low level of 0.1 per cent – from as early as June this year.
All lenders now believe that 2022 will feature not one but multiple rate hikes, to lift Australia’s cash rate to around 1.5 per cent by the end of 2023.
Graham Cooke, head of consumer research at Finder, said banks are well aware of the forecasts and are moving early to cover their margins.
“That’s why banks have increased rates across over 400 fixed rate home loan products over the last week – some by up to 75 basis points,” Mr Cooke said. “This indicates that they may be anticipating not one, but an avalanche of rate rises later in the year. The question is when, and that could be decided by international events.”
Finder analysis shows that a 75 basis point increase would cost the average borrower $3,175 this year by raising repayments by $265 a month.
“Cash rate rises are like buses: they may take a while to come, then arrive one after another,” Cooke said.
“Banks have already jumped ahead of the RBA and it looks like the opportunity to lock in a long, low rate for your home may have passed.”
Despite the gloomy outlook, Mr Cooke said it was always recommended to borrowers to mindful of what other rates are available in the market.
Your home loan is likely your biggest expense, so you need to be proactive about always getting the best deal you can.
“The difference between three per cent and two per cent doesn’t sound like much, but it adds up to thousands of dollars a year by refinancing your mortgage,” he advised.
“Even if you need to break your fixed contract, you’ll likely save more than the cost of the break fee. “Plus, many lenders offer cashback up to $3,000 for refinancing – all the more reason to look into it.”
AMP Capital’s Chief Economist Shane Oliver said the triggers for the RBA to raise interest rates were already in motion.
“The RBA’s objective of full employment has been reached, wages growth is picking up and inflation is pushing well above target with a rising risk that inflation expectations will start to rise in which case it will become self-feeding, and the Budget will add in more stimulus this year,” Mr Oliver said.
“So the conditions for a rate hike will be in place by June.”
America’s most expensive property on the market for $215 million
Australia’s median property values*
Change in 2022:
+ 0.3 per cent
+ 0.1 per cent
+ 6.4 per cent
+ 5.7 per cent
+ 1.9 per cent
+ 2.7 per cent
+ 1.7 per cent
+ 3.1 per cent
+ 2.4 per cent
*CoreLogic Hedonic Home Value Index. Results as at 31 March, 2022
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