Reserve Bank’s 10th rate hike weighs on private borrowers

The rise in interest rates will cause even more pain for homeowners across the country, including the Crib Point couple.

The recent increase points the monthly increase to over four digits for those with a $500,000 loan. Such a borrower is now paying $1051 more per month than it was spending before the rate hike cycle, Canstar modeling shows. Repayments from $2103 a month last April are now up to $3154 a month.

Those with a $750,000 mortgage are now paying an additional $1,577 each month, while homeowners with a $1 million loan are seeing their repayments increase by $2,103.

Westpac chief economist Matthew Hassan expects more pain for those with mortgages, with two more rate hikes likely in April and May.

“It’s going to be a very challenging year for Australia’s mortgage belt,” Hassan said. “You will face a very severe stress test.”

But Hassan said increases are needed to address inflation.

“Australia is in an inflationary emergency – inflation is not only high, it is way too high and needs to be addressed before the RBA (Reserve Bank of Australia) can refocus on growth.”

Although house prices in Sydney and Melbourne stabilized in January and February when eviction rates were above 60 percent, Hassan said it was too early to say house prices would improve.

He expects a peak-to-trough price decline of 16 percent nationwide. Other economists, including Dr. AMP Capital’s Shane Oliver expect the ball to be between 15 and 20 percent.

Though homeowners would be under increasing stress, Hassan doesn’t anticipate a rush of distressed home sales.

“Homeowners are still in good shape because many have a good buffer of accumulated savings [from COVID]’ Hassan said. “Lenders have a variety of tools that homeowners can use to manage stress when it arises.”

Chris Foster Ramsay, finance director of Foster Ramsay, which helped Smith and Davidson get their loan, said banks are already talking to brokers about what they could offer to ease the burden on those on the fringes.

“They’re talking about going back to COVID rules where extra precautions are being taken to try to help as best we can,” Foster Ramsay said.

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Foster Ramsay said some homeowners he helped get on the market before interest rates began to rise began discussing how the increased interest rates were affecting them.

“They told us that the family budget was almost becoming a problem and they asked us for advice on what to do,” he said. “We’ve seen other customers that we know who are overwhelmed but don’t talk about it; they keep it pretty quiet.

“But I think the message needs to change from those 10 increases to: people need to contact and talk to their brokers or banks for help, much like they did during COVID.”