Unless you’re on a fixed-rate mortgage, you will now be feeling the effects of the RBA’s most recent rate rise which has been passed on in full by most of the major lenders.
The level of additional monthly costs will depend on the size of your mortgage, but whatever that may be, all customers will have higher monthly repayments. With this added pressure on household finances, there will be an expectation that most lenders will be implementing some form of tightening to their lending policies. For example, the amount of money you can borrow will be affected. We’ve already seen ANZ lower their DTI (debt to income ratio) as a result of the RBA’s most recent rate rise. So it figures that we’ll be seeing some more tightening of lending criteria from other lenders as responsible lending will need to be adhered to.
As a general overview, an owner-occupier with a 25-year loan of $500,000 (paying principal and interest).
With the cash rate being increased by 50 basis points this month to 0.85%, it means your monthly repayments could increase by roughly $133 a month.
For someone with a loan of $750,0000, their repayments will likely increase by about $200 a month, and on a $1 million loan, it is expected to cost an extra $265 a month.
CreditorWatch chief economist Anneke Thompson said the RBA’s next move would be influenced largely by wage price index data from the ABS and average earnings in the national accounts.
“Even if upcoming wage data shows an increase on the current pace of growth of 2.3 per cent, it is a near impossibility that it will be anywhere near the latest inflation figure of 5.1 per cent,” she said.
“If we see wage price growth with a three in front of it, this might push the RBA to move the cash rate more aggressively, to try and get the inflation spiral under control more quickly.”
With this latest economic data, it will be interesting to see if the Federal Labour government sticks to their pre-election rhetoric and seeks to increase minimum wages in line with inflation. However, for this to happen the Fair Work Commission must first agree to make it a reality. There is general consensus amongst economists that workers on minimum wage need a relatively generous pay increase to keep up with price rises and rising home loan rates otherwise, there is the real potential of wages growth for those on minimum wages going backwards without some form of government support. Added to this the threat of a recession and rising unemployment is looming large.
Governor Philip Lowe said the hike would help get inflation to target.
Mr Lowe hinted further hikes were likely in the months ahead, with the size and timing of further rises guided by the outlook for inflation and the jobs market.
“Governor Lowe has indicated the neutral cash rate could be around 2.5 per cent. If we get there by Christmas next year, the average borrower with a $500,000 debt could see their repayments rise by $652.
If the risk of future rate rises is causing you concern about your ability to manage your mortgage repayments, don’t wait get in touch with us now.
As indicated by the RBA Governor, the likelihood of further cash rate rises in the coming months and potential years ahead is almost a certain guarantee.
So, if you want to look at getting yourself into the best possible position to manage your mortgage repayments, your family budget and minimise your financial risks, get in touch with us today so we can explore all your finance options.
Our experienced brokers have access to all the latest lender loan facilities and can assist you with making the right decision to suit your personal situation. From refinancing and fixing the best rates, to private lenders for your property development deals, we have the knowledge and expertise to help you.