Aussies copped yet another interest rate hike yesterday when the Reserve Bank (RBA) lifted the official cash rate to 3.6 per cent.
But it’s not just mortgage holders being dealt the blow, with potential new homeowners seeing their borrowing power significantly reduced.
Research from Compare the Market found Aussies who were looking to get a foot on the property ladder may find they were able to borrow much less from major lenders.
A Sydney couple that earned a combined gross income of $150,000 per annum with no kids, had the potential to borrow $994,000 in March last year. But now, that same couple can only borrow $800,000 – almost $200,000 less.
Assuming there are three more 25-basis-point increases, and those increases are passed on in full, that couple might only be able to borrow $746,200 in July of this year.
Breaking down rate rises
Research from Canstar found that someone with a $500,000 loan over 30 years would be paying about $1,051 more per month, or $12,612 per year, in repayments than they were a year ago if yesterday’s rate hike was passed on in full.
A borrower earning an average, after-tax annual income of $71,103 would need to work the equivalent of an extra 29 hours per month or 348 hours per year to make up the shortfall in repayments.
Canstar editor-at-Large and money expert Effie Zahos said households were feeling the strain, especially given the higher cost of living.
“The pressure is on for households to find the money to cover a 50 per cent increase in monthly home loan repayments. There’s no quick fix here – they’ll need to either earn more or spend less,” Zahos said.
“Earning enough to cover the increase in repayments from the last 10 consecutive rate hikes would require the average Aussie to work an extra 29 hours per month. That’s almost an extra week of work. Effectively, households with a $500,000 mortgage either need to find an extra working week per month or cut their expenses by a massive $1,000 per month.”