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$429 more per month: More mortgage pain imminent as inflation soars

·3-min read
Houses on a street
It's all eyes on the Reserve Bank of Australia’s meeting next week, with further hikes to the cash rate expected. (Source: Getty)

Aussie mortgage holders are bracing for another hefty rate hike from the Reserve Bank of Australia (RBA) next week following the biggest year-on-year increase in inflation since 2001.

The Consumer Price Index (CPI) rose 1.8 per cent in the June 2022 quarter and 6.1 per cent annually - the greatest year-on-year increase in inflation since June 2001, in the wake of the GST’s introduction.

Trimmed inflation, which is what the RBA focuses on, rose 4.9 per cent - the highest increase since the ABS first published the series in 2003.

Cameron Kusher, PropTrack director economic research, said a 4.9 per cent jump in underlying inflation was well outside the RBA’s target range, “all but confirming another interest rate hike in August”.

For mortgage holders, that means higher repayments if their banks pass on the increase.

RateCity data found if the RBA increased the cash rate by 0.50 percentage points on Tuesday, the average owner-occupier with $500,000 debt and 25 years remaining would see their monthly repayments rise by $140.

That would see their repayments surge by an extra $427 a month compared to April, with more rate hikes forecast before the end of the year.

“On top of rising grocery and petrol prices, that’s going to hurt,” RateCity research director Sally Tindall said.

“Although borrowers knew rates wouldn’t stay at record lows forever, not many would have predicted such significant increases so soon.”

Tindall said there was more pain on the way for households with a home loan.

“The RBA has warned it plans to steadily increase rates to try to rein in inflation, with some economists now forecasting a cash rate of 3.35 per cent within months,” she said.

Compare the Market banking expert David Ruddiman expected the RBA to “go hard and fast” on rates and increase the cash rate by at least 75 basis points next week.

mortgage pain
Source: Compare the Market

“Now is the right time for the RBA to pull harder on the cash rate lever, otherwise we could be looking at a longer and much harder road back for Australians as the RBA aims for an inflation target of 2-3 per cent,” Ruddiman said.

If the RBA hiked rates by 75 basis points, the average homeowner with $500,000 in debt with 30 years remaining on the loan would see their repayments increase by $214 a month, the analysis showed.

A recent survey by Compare the Market found 54 per cent of Aussies were worried about rising interest rates, with 93 per cent concerned about a possible recession in the next 12 months.

“It has been well documented that most households have built a buffer during the COVID period, which should help to ride out these increases, but everyone should still take the time to put their rate under the microscope,” Ruddiman said.

“You may not be on a competitive variable rate, or your fixed rate may be expiring soon, so there’s no time like the present to see if you are spending unnecessarily.”

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