Interest rate hike expected in June and increase in mortgage repayments

Looking at the total monthly value of all home loans taken out, fixed rate mortgages peaked in July and August 2021 at around 46% as borrowers locked in record rates. In July 2019, before the pandemic, the proportion of fixed rate loans was around 15%.

A borrower with a standard variable rate mortgage of $500,000 would see their monthly repayments increase by about $275 with a 1% rate increase and about $560 with a 2% rate increase.

A homebuyer with an $800,000 loan would see their monthly payments cost $440 more with a 1% increase and $900 with a 2% increase.

Borrowers with variable mortgage rates would not be the only ones affected by a rise in the official exchange rate. Mr. Aird said there were about $500 billion in fixed-rate mortgages due to expire over the next 24 months, exposing those borrowers to higher rate risk.

AMP Chief Economist Shane Oliver expects the RBA to hike the cash rate in August but says it could ‘eventually’ happen in June due to stronger inflation data , strong employment results and the start of wage growth.

Over the next two years, he expects the interest rate to peak between 1.5% and 2%.

“It would add a similar amount to variable mortgage rates,” Dr Oliver said. “This will bring interest payments on household debt relative to income back to around 2018 levels.”

HSBC economists now expect rates to rise by half a percentage point in the second half of 2022 from August at the earliest, with increases now “likely” rather than “plausible”.

Financial markets are even more aggressive, now pricing in a spot rate of 1% by October and a spot rate of 2% by May.

Consumers are also under inflationary pressures. The weekly ANZ-Roy Morgan measure of consumer sentiment reveals a further rise in inflation expectations, with respondents tipping it up to 5%.

Inflation, currently at 3.5%, is a growing political problem for the federal government. This week, The Sydney Morning Herald and age revealed that the government was debating the merits of extending the low- and middle-income tax offset for another year as a $7 billion election sweetener.

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But he is warned that such a tax cut could fuel a further rise in inflation, forcing the Reserve to act more quickly on interest rates or push them higher than expected.

Pressed to raise the price of beef by 65% ​​since the end of 2013, Prime Minister Scott Morrison linked inflationary pressures to the state of the budget.

“I’m talking about the inflationary pressures in this country. And that affects the cost of living. An important way to make sure that we can control those inflationary pressures is the financial management of the government,” he said. he declares.

Figures released at a Senate estimates hearing on Tuesday showed there were about $5.5 billion in government decisions made in its mid-year budget update that have yet to be made. public. They are expected to be released over the next six weeks, ahead of the March 29 budget.

They do not include the $2.3 billion in additional spending the government has revealed in recent weeks, such as its $400 bonuses for older workers.

In its mid-year update, the 2022-2023 budget was expected to show a deficit of $84.5 billion.

Shadow Treasurer Jim Chalmers is said to be undecided whether Labor would support extending tax compensation for low and middle incomes, arguing cost of living pressures could be addressed in other ways.

“We have to get wages to rise again because real wages are falling. We have a policy there. We have to think about the cost of living in all areas. Taxation is an important part of the story, but it is not the only part of the story,” he said.


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