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The Reserve Bank of Australia’s (RBA) decision to implement a sixth consecutive cash rate increase will add further burden to the pockets of everyday Australians, according to RateCity.
The central bank made the move to bump the cash rate up by 25 basis points at its October board meeting, taking it to 2.60 per cent, which sees the rate surpass the decade average prior to the onset of COVID of 2.55 per cent.
Not since July 2013 has the cash rate been this high, with RateCity deducing that should lenders opt to pass on the rate hike to their customers, as is anticipated, the average owner-occupier with a $500,000 loan and 25 years remaining will see their payments increase by $74, taking the total increase in monthly repayments since May to $687.
For any owner-occupier with a $750,000 loan and 25 years remaining, monthly repayments are set to increase by $110 following the RBA’s latest decision, with this sum rising to $147 for borrowers with a $1 million loan.
RateCity estimates that the average existing owner-occupier rate will be 5.36 per cent, with a competitive variable rate that will be just over 4 per cent for owner-occupiers paying principal and interest.
Sally Tindall, RateCity’s research director, outlined how the RBA has “taken its foot off the accelerator by reverting back to a standard 0.25 percentage point hike this month as it assesses global and domestic factors”.
“Variable rates have now risen 2.5 percentage points since May, which means the average owner-occupier will soon be paying a rate that’s well over 5 per cent,” Ms Tindall said.
She explained that the rate hikes would not cease, given governor Philip Lowe’s indication that there are more to come as he continues to walk a “very fine line in trying to tame inflation, while keeping the economy strong”.
“Borrowers need to remember there’s a lag on when the RBA hikes official rates and when extra money comes out of their bank accounts. People might think they’ve conquered five rate hikes already, but the reality is, most variable borrowers have only felt the impact of the first three,” she said.
As for when customers can expect an announcement on passing on the rate hike, that period has ballooned out with each decision, culminating in NAB being the quickest of the big four to announce their decision, three days after the announcement.
For such reasons, Ms Tindall believes that “all eyes are on the banks as to what they’ll announce and how they will make customers wait”.
“The banks have shown they’re entirely capable of making their RBA rate announcement within 24 hours of a rate hike. There is no reason for them to hold back from telling customers what impact this will have,” she said.
For home owners with an interest rate beginning with “5”, Ms Tindall recommends speaking to your bank about brokering a better deal or, given that the Australian Bureau of Statistics (ABS) latest data indicates refinancing is at record levels, speak to another lender about switching allegiance to them for a lower charge.
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