The Reserve Bank lifted the official cash rate again this month – by another 25 basis points – and as so many Australians start to come off their fixed rate mortgages, the question on everybody’s lips is have they hit the end of their run?
In a blow to homeowners, Tuesday’s RBA statement said the bank expects more interest rate rises into 2023 as it continues its efforts to rein in inflation.
But those same homeowners can at least breathe a sigh of relief for a couple of months, with no RBA meeting in January, and the central bank also saying in their statement they are ‘not on a pre-set course’.
Economists expect the annual inflation figure for the year to December to come in at around 8 per cent, much higher than the RBA’s target range of 2-3 per cent, but the quarterly figure is expected to be weaker, giving hope to many that inflation has hit a peak.
During the pandemic people were able to squirrel away money quicker than usual, and either save it or get ahead on their mortgage repayments, but now as these rate rises start to bite, those gains are expected to disappear fairly quickly and consumer spending will have to be cut back significantly.
The eight months straight of rate rises mean an extra $1,000 a month for an average variable mortgage on a $600,000 loan, an there won’t be many people out there who won’t feel the pinch of that.
Those households that can’t find ways to increase their income in response to the added payments could easily fall into debt and be forced to sell their homes.
The pain is set to be felt even worse by the one-third of Australian mortgages that are currently still sitting on fixed rates, most of which are due to expire in 2023.
When these loans, that were taken out on fixed rates around the 2 per cent mark, move onto variable rates, borrowers will now all of a sudden be paying interest rates on their mortgage between 6-7 per cent.
Mortgage holders will be hoping that national economic figures over the next two months start to indicate that the eight months of rate rises has hit household budgets hard and done what the RBA hoped, and then some.
If that’s the case, when the Reserve Bank meets again on February 7, it may decide to sit on its hands for a while to see how things unfold in 2023.