Australian homeowners have been hit with another mortgage blow after the Reserve Bank lifted interest rates by a quarter of a percentage point, pushing borrowing costs to a fresh high as it battles stubborn inflation.
asserted
it → hit → inflation
A 0.25 percentage-point increase takes the cash rate from 4.60 per cent to 4.85 per cent, its highest level since the global financial crisis in 2008.
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increase → take → 2008
The decision means a borrower with a typical mortgage will face another increase in monthly repayments, piling fresh pressure on already stretched household budgets.
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borrower → mean → budgets
Canstar data insights director Sally Tindall said Australia may be revisiting 2008-era interest rates, but today's borrowers have far bigger mortgages to contend with.
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borrowers → say → mortgages
She said the average new owner-occupier loan has nearly tripled, from $254,000 in November 2008 to $731,000 today, up 188 per cent, while the median property price has risen by 129 per cent, with it now sitting at $884,855.
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it → say → 884,855
For someone with a $600,000 mortgage, another rate hike will mean finding an extra $92 a month to clear their new minimum repayments.
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hike → mean → repayments
However, across what is now five hikes for the year, the total increase would be a jaw-dropping $456,' she said.
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she → drop → year
'The pressure is really starting to mount and it's not just on our central bank,' she said.
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she → start → bank
If the RBA ratchets up the cash rate once again, some will hit their financial ceiling.
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some → ratchet → ceiling
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RBA governor Michele Bullock (pictured) and her board have lifted the cash rate to 4.85 per cent, its highest level since the global financial crisis in 2008
Canstar data insights director Sally Tindall (pictured) said Australia may be revisiting 2008-era interest rates, but today's borrowers have far bigger mortgages to contend with
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borrowers → picture → mortgages
Tindall said she was concerned some borrowers may have no more buffer to fall back on.
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borrowers → say → buffer
'The question now is how much more room households have in their finances.
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households → have → finances
Some borrowers will be able to absorb another increase within their current budget, but others may be forced to raid their savings.'
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others → absorb → savings
Former RBA economist Luke Hartigan said the RBA's previous approach of making smaller, more cautious moves has not done enough to bring inflation under control.
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approach → say → control
He said the RBA may have little choice but to keep tightening despite the economic risks.
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RBA → say → risks
'This could cause a recession and a dramatic increase in the unemployment rate and further falls in housing prices in early 2027,' he said.
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he → cause → 2027
'While inflation remains outside the target band it risks inflation expectations becoming unanchored which would be very costly to correct.
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which → remain → band
Interest rates are a blunt instrument for managing inflation.
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rates → manage → inflation
Governments, both state and federal, can have a more targeted role in helping to manage inflation by reducing demand pressures in the short-term via increased taxation and reduced spending while also seeking to boost the productive capacity of the economy over the long-term.'
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Governments → have → term
AMP chief economist Shane Oliver expects national house prices to fall about 15 per cent from peak to trough, warning the downturn is now tracking at its fastest pace since 1980.
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downturn → expect → 1980
AMP chief economist Shane Oliver (pictured) said Sydney, Brisbane, Adelaide and potentially Perth were likely to experience the steepest declines
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Sydney → picture → declines
National average prices are down 6.7 per cent and capital city prices down 8.1 per cent from their early-year peaks,' he said.
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he → say → peaks
The rapid decline, combined with more rate hikes than expected, rising unemployment and the structural changes associated with investor tax increases, suggests the top-to-bottom fall is now likely to be around 15 per cent.'
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fall → combine → bottom
Oliver said Sydney, Brisbane, Adelaide and potentially Perth were likely to experience the steepest declines, while Melbourne and Hobart should prove more resilient.
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Melbourne → say → declines
He expects prices to bottom out in the September quarter next year before beginning a modest recovery in 2027-28, when the Reserve Bank is expected to start cutting interest rates.
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Bank → expect → rates
'While we think the RBA, after another rate hike this week, will have done enough to slow demand in the economy and cool inflation, with 4.85 per cent likely to mark the peak in the cash rate, the risk of further hikes remains high,' he said.
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he → think → hikes
In any case, RBA commentary is likely to remain hawkish for some time and we don't expect rate cuts until the December quarter next year.
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we → remain → quarter
Angus Moore, a senior economist with realestate.com.au, said the rate rise will lengthen the downturn already underway in the housing market.
'Home prices nationally have declined for seven straight months,' he said.
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he → say → months
Further increases in mortgage rates will reduce borrowing capacities again for prospective buyers, adding to the downward pressure on home prices
'Further increases in mortgage rates will reduce borrowing capacities again for prospective buyers, adding to the downward pressure on home prices.
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increases → reduce → prices
'However, the downturn, while brisk, remains an orderly adjustment driven by rising rates and affordability pressures, rather than a distressed housing correction.
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downturn → remain → correction
'Labour market conditions remain resilient by historical standards, mortgage arrears rates remain low, few borrowers are in negative equity, and many households retain substantial repayment buffers.'
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households → remain → buffers
The Aporia
