If you are looking for a home loan or fixed your loan, then buckle up and prepare for a rough ride into 2023.
The Reserve Bank of Australia handed down an eighth straight increase in interest rate at its final meeting of 2022 – and delivered a bleak warning of more to come.
The quarter-point rise took the cash rate from 0.1 per cent to 3.1 per cent. But experts expect 2023 will see a peak of 3.7 per cent .
RBA governor Philip Lowe confirmed the bank also expects more rises.
Westpac, NAB and ANZ announced they would pass on the latest increase in full to mortgage holders.
Ratecity, a comparison site, says Monthly repayments on a 25-year, $500,000 mortgage have increased by $834 since May, and $1251 for a $750,000 mortgage,.
Corelogic commented that loan applications had declined almost 18 per cent and annual property sales were down 13%. Consumer sentiment was also down.
The AMP chef economist Shane Oliver said: “In summary, we see the RBA as being at or close to the peak on rates. Our base case is that we are now at the peak, albeit with the high risk of one final 0.25% hike to 3.35% early next year. By early next year we expect that the combination of a sharp slowing in domestic demand, increasing signs that inflation has peaked and sharply weaker global growth which will in turn also drive inflation down will enable the RBA to keep rates on hold for an extended period. By late next year or early 2024 we expect the RBA to start cutting rates.
“Our view remains below the consensus of economists – which sees a peak in the cash rate at 3.55% in the June quarter next year – and the money market – which sees a peak at 3.69% in December next year (which is well down from 4.2% a month ago). As noted above we concede that the risk to rates remain on the upside in the near term with the main risk being a further faster than expected pick up in wages growth running the risk of a “wage-price” spiral.”
Mortgage Choice CEO Anthony Waldron said, “The Reserve Bank has ended the year with another cash rate rise. Today’s decision marks the eighth cash rate hike since May, a trend which has meant significant adjustments for borrowers on variable rate home loans.”
Reserve Bank data shows that a large volume of fixed-rate loans will expire next year. Around two-thirds of outstanding home loans are currently on fixed-rate terms and two-thirds of these are set to expire by the end of 2023. These borrowers could see their home loan interest rate increase by 3–4% when their fixed term ends and they move to a variable rate.
“It’s important borrowers coming off fixed rates are prepared for the change. Our Mortgage Choice brokers are actively talking to borrowers who fixed their rate in the last couple of years to help them prepare for the shock of moving onto rates that might be double what they’ve been paying. And it’s not as simple as re-fixing your rate because fixed rate pricing has shot up in the last two years.”