Interest rates spell more pain for homeowners

This would be the sixth rate rise since May and would take interest rates from a record low of 0.1 per cent to 2.85 per cent.

For a typical homeowner with a mortgage of $500,000, the October increase would mean homeowners would need to fork out an extra $157 a month to cover repayments, according to Canstar.

It would see homeowners repayments skyrocket by an extra $808 overall since rate rises began in May.

Aussies with a $1 million mortgage would see loan repayments increase by a whopping $313 a month and an extra $1617 since May, according to Canstar analysis.

If the RBA delivers another double hike, it will deliver an interest rate rise to its highest level in nine and a half years.

Three of the big four banks are expecting interest rates to be lifted by 0.5 per cent, while CommBank predicts a smaller increase of 0.25 per cent.

AMP chief economist Shane Oliver said there was no doubt interest rates would increase due to high inflation, which is over 6 per cent, as well as comments from RBA indicating that rate rises were necessary.

“After five rate hikes in a row the RBA should be slowing the pace of rate hikes to be able to assess the impact of rate hikes to date and allow for monetary policy lags,” he said.

“As such we expect a 0.25 per cent hike. But the risk is high that it will go with another 0.5 per cent hike given the excessive focus on backward-looking inflation and jobs data and the hawkishness evident in other major global central banks.

“A 0.4 per cent hike would be a nice compromise.”

RBA Governor Philip Lowe acknowledged last month that interest rate rises were unwelcome but necessary.

“I know that higher interest rates are unwelcome for many people, especially those who have borrowed large sums over recent times,” he told a parliamentary committee.

“Higher interest rates are putting pressure on households, just at the time that higher petrol prices and grocery bills are squeezing budgets. So it is a difficult and a concerning time for some people.

“The alternative, though, of allowing higher inflation to become entrenched would be even more difficult and it would damage our economic prospects.”

Some economists and experts have tipped interest rates to go above 3 per cent by next year.

Already, the RBA’s aggressive monetary tightening has left the highest number of Aussie mortgage holders classified as at risk of mortgage stress for over three years since May 2019.

If the rate is hiked in October and November as predicted, that number will rise again to one in four mortgage holders under financial stress, the equivalent of 1.1 million people, Roy Morgan research found.

This would be the most mortgage holders classified as at risk since July 2013, just over nine years ago.

House prices have also been hammered, with prices falling and an overall 20 per cent drop predicted.

In Sydney, prices are down 9.1 per cent from their highs recorded in February, while prices in Adelaide and Perth have only fallen by 0.6 per cent and 0.7 per cent respectively.

There are fears house prices could plummet by as much as 43.5 per cent in 2025 in the “worst case scenario” if the Reserve Bank of Australia continues to push through super-sized rate hikes to tackle the worst inflation in three decades, analysis found.

This could mean Sydney’s median house price would fall from its 2022 peak of $1.41 million to just $796,650 – a $613,350 drop in just three years.

Skyrocketing interest rates have also hit borrowers hard with dramatic decline in new mortgages for housing, which fell 8.5 per cent in July and is off 11.3 per cent from the same time a year earlier.

Eleanor Creagh, PropTrack Senior Economist, said the fastest rise to interest rates since 1994 has seen home prices falling across the country, with prices nationally now sitting 3.35 per cent below their March peak.

“As borrowing capacities are constrained and buyer’s budgets shrink, the most expensive markets of Sydney and Melbourne have led the price declines,” she added.

Today’s rate hike will further increase borrowing costs and reduce maximum borrowing capacities, pushing property prices further down. In the period ahead, the level of interest rates will be a key determinant of housing market conditions and the pace and depth of home price falls.”