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Six months of interest rate rises. That’s likely to be the headline you’ve seen recently, as The Reserve Bank of Australia (‘RBA’) has announced another 0.25% raise in the official cash rate, increasing the rate to 2.60%.
What does this mean for borrowers?
Say for example your home loan interest rate were to increase from 4.5% to 4.75%, you would experience an increase of $14.96 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 = $59.84
Repayment increase on a $600,000 loan = $89.76
Repayment increase on a $800,000 loan = $119.68
Rate rises often take some time to impact a borrower’s monthly repayments, and only impacts borrowers on variable rate home loans. For those on fixed rate home loans, your repayments won’t increase until your fixed term ends, and your mortgage switches to a variable interest rate.
Pressure on House Prices Easing
CoreLogic’s national Home Value Index (HVI) provides a monthly record of the value of houses across Australia. Last month, CoreLogic reported the largest month-on-month decline in almost four decades (down -1.6%).
CoreLogic reported a further fall in housing values through September, with the national Home Value Index (HVI) recording a -1.4% decline in September.%, showing that the rate of decline eased.
However, it’s still slightly positive news for property owners, as it may suggest the property market’s decline in value could be nearing its end.
Core Logic said: “September’s Home Value Index shows the rate of decline in housing values eased last month as buyers, vendors and borrowers absorbed the shock of five consecutive rate rises.
“However, it’s too soon to suggest the market has moved through a peak in the rate of decline, with further rate hikes ahead.
“Although values continue to trend lower, the rate of decline eased from a -1.6% fall in August.”
What did the RBA say about interest rates?
The RBA reiterated that the goal of increasing the official cash rate is to return inflation back to somewhere between 2-3%. In their press release announcing the rate change, the RBA stated:
“As is the case in most countries, inflation in Australia is too high. Global factors explain much of this high inflation, but strong domestic demand relative to the ability of the economy to meet that demand is also playing a role.
“A further increase in inflation is expected over the months ahead, before inflation then declines back towards the 2–3 per cent range.”
The RBA also said to expect continued rate rises until inflation meets the desired levels: “One source of uncertainty…is how household spending in Australia responds to the tighter financial conditions. Higher inflation and higher interest rates are putting pressure on household budgets, with the full effects of higher interest rates yet to be felt in mortgage payments. Consumer confidence has also fallen and housing prices are declining after the earlier large increases. Working in the other direction, people are finding jobs, gaining more hours of work and receiving higher wages. Many households have also built up large financial buffers and the saving rate still remains higher than it was before the pandemic.
“Today’s further increase in interest rates will help achieve a more sustainable balance of demand and supply in the Australian economy. This is necessary to bring inflation back down. The Board expects to increase interest rates further over the period ahead. It is closely monitoring the global economy, household spending and wage and price-setting behaviour. The size and timing of future interest rate increases will continue to be determined by the incoming data and the Board’s assessment of the outlook for inflation and the labour market.”
How we can help
As interest rates rise, Australians with variable rate home loans will experience further increases to their mortgage repayments.
Now is the time to have an experienced and trustworthy expert in your corner, looking out for your best interests.
That’s where our YBR Home Loans’ Mortgage Brokers can step in and guide you through what options may be available to you to help ease the stress of the current environment.
Alan Khaw, Branch Principal and mortgage broker at YBR Home Loans Gladesville, said that he understands the pain that his clients will be feeling as they continue to experience rate rises.
“As a broker, I feel the pain of my clients facing rising rates because I also have loans linked to my property and my business. The key to success in this challenging moment is knowing what my stretch repayments are (that is, what my repayments will be at higher rates), understanding and adjusting my cash flow to meet these challenges, and building buffers for times like this.
“As mortgage brokers we keep an open mind on how we find solutions for you.”
Don’t hesitate to contact us today and find out more about how our experienced home loan experts can work with you and your circumstances to weather any storm, and ensure you’re doing everything you can to work towards your property goals.