RBA hits keep coming – cash rate now enters the ‘4s’

The cash rate will climb into the ‘4s’ with the RBA announcing the nation’s twelfth cash rate hike since May 2022.

This latest hike takes Australia’s cash rate to 4.10 per cent – the highest rate since April 2012.

In Governor Lowe’s statement today, the RBA has reiterated it is “resolute” in its mission to bring inflation back into the target band of 2-3 per cent and that more hikes may be necessary.

If lenders pass on the 0.25 percentage point increase, as expected, the average owner-occupier who hasn’t renegotiated their loan since the start of the hikes will be on a rate of 6.86 per cent.

For someone with a $500,000 loan at the start of the hikes, their repayments will rise by $76, with a total increase to their loan since May 2022 of $1,134.

Impact of today’s hike on monthly mortgage repayments

Source: RateCity.com.au. Based on an owner-occupier paying principal and interest with 25 years remaining. Starting rate is the RBA av. existing owner-occupier variable rate of 2.86% in April and assumes banks pass the hikes on in full.

What will a competitive mortgage rate now look like?

While the average owner-occupier is on a fast train towards a rate that starts with a ‘7’, new customer rates are still significantly lower.

If the big four banks pass on this rate hike in full, none of them will have an ongoing variable rate under 6 per cent.

Westpac is likely, however, to have a two-year introductory rate under this mark.

Meanwhile, RateCity.com.au estimates a competitive rate will be below 5.75 per cent while a cracking rate will be below 5.50 per cent. 

This assumes lenders pass this hike on in full.

Estimated variable rates – post June hike

Source: RateCity.com.au. Note: Big four bank average includes Westpac’s introductory rate. LVR requirements apply.

RateCity.com.au research director, Sally Tindall, said: “Australia’s twelfth hike in 14 months puts many borrowers into financial territory they never thought they’d see in the life of their loan, let alone in just over a year.”

“The RBA is increasingly starting to look like Fred Flintstone and Barney Rubble. It’s doing what it can with a very blunt instrument,” she said.

“Some borrowers are well into the red with limited avenues out. Others are either splashing the cash or squirreling it away in the bank. At what point should the government reassess the instrument rather than the Board using it?

“In less than two weeks’ time, the majority of borrowers will be charged a higher interest rate as a result of this RBA decision, yet, in many cases, the extra money won’t come out of their bank accounts for another three months – depending on their bank.

“The seemingly haphazard approach to increasing customers’ monthly repayments is causing confusion among borrowers who are just trying to make the dollars and cents add up.

“Our research shows most variable borrowers have no idea what rate hike they’ve started paying for and which ones are still to come, making it next to impossible to budget.

“If you’ve got a variable home loan, call your bank and ask them what your repayments will be if it passes on this latest hike. Throw another one in for good measure and start paying that amount today.

“If you can’t afford these higher repayments, you’ll have time on your side to do something about it,” she said.

Tips for borrowers:

• Call your bank: check what your new monthly repayments will be after this hike and what they could rise to if there’s more to come.
• Start making these higher repayments now: moving fast will help ease the squeeze that will come later.
• Check your equity: if you own more than 30 per cent of your home at today’s values, you might be eligible for rate discounts if you refinance. Test out your financial position with a trusted mortgage broker or directly with a few competitive lenders.
• Don’t extend your loan term: if you’re five years into a 30-year loan term, then ask your new lender for a 25-year loan term, or shorter if possible. Extending your loan back out to 30 years might lower your repayments, but you’ll pay for it in the long run.

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