What an RBA rate hike could mean for borrowers

The RBA could hike the cash rate tomorrow to the highest level since November 2011 in its 13^th move to rein in inflation since May of last year.

Should the Board raise the cash rate by 0.25 percentage points to 4.35 per cent, the average borrower with a $500,000 debt at the start of the hikes will see an additional $76 added to their monthly mortgage repayments.

The total increase to their repayments, since the start of hikes, would be $1,210 – a 52 per cent increase on what is typically a borrower’s biggest monthly expense.

Impact of a 0.25%-point hike: increase to monthly repayments

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

All big four bank economic teams expecting the cash rate to peak at 4.35%

Economists from CBA, Westpac, NAB and ANZ have all forecast a 0.25 percentage point hike to the cash rate at tomorrow’s meeting.

The last time the big four bank economists were unanimous in their forecast was March 2023 – when all expected a 0.25 hike and were correct in their prediction.

If the RBA hikes the cash rate tomorrow, it is expected to warn the country more rate hikes could be required, however, all four big bank economic teams believe tomorrow’s potential will be the last in this tightening cycle.

That said, Australians should prepare for a cash rate of 4.60 per cent. For a borrower with a $500,000 loan at the start of the hikes, two standard RBA hikes would mean approximately an extra $152 on top of their current monthly repayments, and a total increase of $1,286.

For someone with a $1 million debt, it would mean an extra $304 across two hikes, and a total increase of $2,572 across what would then be 14 hikes.

Borrowers have negotiated their way out of an average of 2.5 RBA hikes

While the vast majority of lenders have passed on the full 400 basis points of cash rate hikes to their variable customers, data from the central bank shows the average owner-occupier has been able to refinance or negotiate their way out of 0.66 percentage points of cash rate increases – more than 2.5 standard RBA hikes.

RBA: average owner-occupier variable rate vs cash rate

Source: Reserve Bank of Australia. Note latest data is for 31 August 2023.

If there’s a hike, what will a decent interest rate look like?

If the RBA does hike, owner-occupiers should still be able to secure a rate under 6 per cent, although these loans will be much harder to find.

Estimated variable rates – post November hike (assumes lenders pass the hike on in full)

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: “While thousands of borrowers will be desperately hoping for a cash rate pause, the RBA Board has made it clear it is focused on fighting inflation, and the case for a hike is looking strong.”

“What’s encouraging to see is that over the last year and a half, Australians have been out there fighting for a better deal,” she said.

“Our analysis shows the average owner-occupier has knocked more than 2.5 standard RBA hikes off their variable rate, which is fantastic. What’s even better is that as an average, there are likely to be thousands of borrowers who’ve managed to secure themselves a much bigger cut than this.

“Australians were once considered to be complacent when it came to personal finance. Not anymore.

“If you’re an owner-occupier with a good track record of paying down your debt, you should be aiming for a rate under 6 per cent – even if the RBA hikes the cash rate to 4.35 per cent.

“Call your bank and find out how high your repayments would go if your rate rose by two standard RBA hikes, and start paying that today. It might put your finances under intense pressure, but it’s better to feel the burn now than to fall short on the other side of Christmas,” she said.

Resources for people in financial stress:

National Debt Helpline: 1800 007 007

Good Shepherd no interest loans

Services Australia Payment and Service Finder

State-based resources:

Service NSW Savings Finder

Service Victoria Savings Finder

Queensland Govt Concessions Finder

SA Govt Concessions Finder

Concessions WA

Concessions NT

Tasmanian Govt Discounts and Concessions

ACT Savings Finder

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