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After the November 1st announcement by the Reserve Bank of Australia (RBA) that the official cash rate target would increase a further 0.25%, Mark Bouris appeared on Channel Nine’s Today Extra to talk about the impact of the SEVENTH consecutive month of rate hikes.
What does this mean for the average borrower?
This latest rate hike makes for dreary viewing for the average home owner, who, since the beginning of the rate rises in May 2022, would now see their monthly repayments increase by over $1200, for an average loan of $750,000.
Say for example your home loan interest rate, following this week’s rise in the official cash rate, were to increase from 4.75% to 5.00%, you would experience an increase of $15.17 per month, per $100,000 borrowed, in terms of minimum monthly repayments over a 30 year loan term. For example:
- Repayment increase on a $400,000 loan = $60.68
- Repayment increase on a $600,000 loan = $91.02
- Repayment increase on a $800,000 loan = $121.36
What is the fixed rate cliff?
During the COVID-era, we saw an extraordinary increase in the number of borrowers opting for fixed rate home loans, due to the incredibly low offers in the mortgage market.
YBR Home Loans analysed their own loan settlements over a 12 month period and found that the percentage of borrowers opting for fixed-rate home loans has gone from 44.5%, over four times higher than the long-term average (around 10%), to just 2.4%, or around ¼ of the long-term average.
Bouris was keen to point out that many borrowers who opted for a fixed home loan two years ago will likely be coming to the end of their fixed term in the coming months.
“40% of those people borrowed in the last two years are now going to be getting hit with a 6% interest rate from 2% to 6%, and that’s why the RBA is only raising rates it at 25 basis point increases at the moment because they do not know the effect of those people coming on fixed rate into variable rate,” said Bouris.
If rates continue to rise, what will happen to house prices?
“House prices have got nowhere to go, they’ve got to go down, and they are going down,” said Bouris.
“We’re going to see a greater reduction in house prices, as people have less money to afford to pay the so called high purchase prices. So we are now in a position that I think the regulator would like to see this happen, that house prices do come down, but what we’re getting on the flip side is those people who can’t afford to buy a house, they’re now going to have to rent a place. And we’ve got massive in a mess in the rental market, with lots of people coming into Australia, and a real shortage of rental properties. Rentals actually push inflation up as well. So we’ve got a bit of a catch 22 going on here.”
Tune into Bouris’ entire appearance on the Today Show Extra by clicking the video above.