Crippling amount your repayments could rise

While last year saw house prices rise by a national average of 22 per cent – the biggest yearly jump since 1989 – a major correction is already underway.

That doesn‘t mean prices will drop by another 20 per cent from now but it does mean that the gains of last year are likely to be eroded if not wiped out after back-to-back rate hikes.

The RBA is tipped to lift rates by 0.50 per cent, with RateCity.com.au analysis finding the average borrower could be paying $760 more a month than they were before hikes started in May.

For an owner-occupier borrower with a $500,000 debt, the total increase to their monthly repayments could be $760 – a 33 per cent increase since the start of May.

For someone with $750,000 remaining on the loan the total increase in monthly repayments since May would be $1,140.

RateCity research director, Sally Tindall, said if the RBA delivers another double hike, it will deliver a cash rate rise to its highest level in nine and a half years.

“The average borrower may soon be paying an extra $760 a month in interest to their bank, at the same time their petrol and grocery bills continue to rise,” she said.

“While the RBA Governor has indicated the board is looking to slow down the size of the hikes in coming months, based on incoming data, October is unlikely to be the meeting it takes its foot off the accelerator.

There‘s also a lag between when the RBA announces a rate rise and when homeowners are forced to pay more.

“You might think you’ve successfully cleared five RBA hikes when really, you’ve only conquered three, potentially even two,” Ms Tindall said.

“If you can, start making these higher repayments now, so you know ahead of time you can afford them. If you can’t, start making cutbacks today,” she said.

There are fears further cash rate hikes could plunge Australia into recessionary territory as global economic uncertainty looms.”

Experts also warn that Australians are more vulnerable to interest rate rises than elsewhere in the world because of higher levels of household debt; a higher share of variable rate mortgages and a large share of recently fixed mortgages are due to expire next year.

“Assuming the cash rate tops out around 2.85% as we expect then average prices are likely to fall 15-20 per cent from top to bottom with the low likely being reached around the September quarter next year,‘’ AMP chief economist Shane Oliver said.

“We expect national average property prices to fall further over the next 9-12 months reflecting: poor affordability; rising fixed mortgage rates; further rate hikes from the RBA pushing up variable rates; high inflation which is making it even harder to save for a deposit; higher supply as we see some increase in distressed sales particularly as fixed rate borrowers roll over to much higher interest rates through 2023 and as the economy slows; and a continuing rotation in consumer spending back towards services as reopening continues which will reduce housing demand.”

And at least some of the help that governments are providing to first home buyers including greater access to home deposit schemes will ultimately help to provide a floor for property prices.

But Mr Oliver warns that if the cash rate is raised to the 4.1 per cent this would more than double average household interest payments and push total (interest and principal) mortgage repayments to record highs relative to household income and drive a 30 per cent or so fall in prices.

“On this front though falling home prices, consumer confidence down around recession levels and a flow through to slower consumer spending will ultimately help limit how much the RBA will have to raise the cash rate by and so we see the peak in the cash rate being well below 4.1%, but the risk to our cash rate forecast is on the upside,‘’ he said.

“There are two main upside risks. The first would be if inflation quickly subsides allowing the RBA to soon start easing. This looks unlikely. The second would be a rapid rebound in immigration exacerbating the shortage of housing evident in very tight rental markets.”

According to the PropTrack Home Price Index national home price falls stabilised to some extent in September amid the spring selling season.

The report found that although price falls were widespread, the pace of falls eased.

Nationally, home prices fell 0.19 per cent in September, the smallest price fall since prices started to decline in April this year.

In the capital cities, prices fell 0.22 per cent. However, prices are up 46.6% since the start of the pandemic.