The Reserve Bank of Australia (RBA) has decided to increase interest rates by 0.25 per cent, bringing it to its highest level since April 2012. This marks the eleventh rate hike in just 12 months, causing concern for homeowners who may face financial strain. Those with an average loan size of $586,000 will be paying around $14,000 more annually compared to last year.
Pradeep Philip, head of Deloitte Access Economics, believes the rate increase is unnecessary given the previous ten rate hikes are still working their way through the economy. He adds that businesses continue to be squeezed, and many mortgage holders will still see their repayments surge as pandemic-era low fixed rates revert to variable.
The Real Estate Institute of Queensland COO, Dean Milton, criticizes the RBA’s decision to hike rates again and says its aggressive tightening cycle will weigh heavily on homeowners. He believes that it’s difficult for would-be buyers to catch a break when their borrowing capacity has been on such unsteady footing.
Despite inflation remaining stubbornly high and the lowest unemployment rate in 50 years, economists and most of the major banks had tipped the RBA to hold out on any rate rise in May as there are signs of consumers and households cutting back. However, some have warned that homeowners could be slugged with an 0.25 per cent rise as inflation only dropped from its peak of 7.8 per cent in December to 7 per cent in the March quarter.
Canstar’s finance expert, Steve Mickenbecker, warns that Aussies were emboldened by the outlook that interest rates would remain low into 2024 and as a result, borrowers in the last two years could now be experiencing severe mortgage stress. The benchmark for mortgage stress is typically when repayments exceed 30 per cent of a borrower’s before-tax income.
In conclusion, the RBA’s decision to hike interest rates again has caused concern for many homeowners who may face financial strain. While some experts believe that the rate increase is unnecessary given the previous ten hikes, others warn that inflation remains high, and future rate hikes may be necessary. It is important for borrowers to assess their financial situation carefully and seek professional advice if needed to avoid severe mortgage stress.