The Reserve Bank has lifted the official cash rate by another 0.5 basis points, to take official rates to a seven-year high.
The central bank’s fifth rate hike in as many months takes the cash rate to 2.35 per cent – the highest it has been since early 2015.
It will bring higher repayments for variable rate mortgage holders.
Canstar data shows that if banks pass on the latest rise in full, a typical mortgage holder with a $750,000 debt and 30 years remaining on their loan will pay $979 more a month than they did in May, before rates started rising.
RateCity said the latest change – if passed on by lenders – would take the average existing mortgage rate for owner-occupiers to 5.11 per cent. A principal and interest rate under 4 per cent would be “competitive”, it said.
“The average variable borrower will soon be on a rate of over 5 per cent – that’s getting close to double what it was five months ago,” RateCity research Sally Tindall said.
“This hike is going to pile even more pressure on households that are already struggling with the rising cost of living.”
She urged borrowers to shop around.
“We expect at least a dozen lenders will still be offering variable rates under 4 per cent once this hike filters through, but only for new customers,” she said.
“Already 25 lenders on our database have cut variable rates for new customers since the RBA hikes began in May. In fact, five banks including CBA and ANZ have lowered their rates twice in this time.
“People thinking about switching lenders should take stock of their financial situation to make sure they’re not in mortgage prison, unable to refinance.
RBA governor Philip Lowe said Tuesday’s rate increase would “bring inflation back to target and create a more sustainable balance of demand and supply in the Australian economy”.
“Price stability is a prerequisite for a strong economy and a sustained period of full employment,” he said.
Dr Lowe flagged that further interest hikes to come.
“The board expects to increase interest rates further over the months ahead, but it is not on a pre-set path,” he said.
“The size and timing of future interest rate increases will be guided by the incoming data and the board’s assessment of the outlook for inflation and the labour market.
“The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”
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The RBA expects inflation to peak later this year, at about 7.75 per cent. It predicts it will remain above 4 per cent during 2023 and then fall to closer to 3 per cent in 2024.
Prime Minister Anthony Albanese has acknowledged the financial pressure faced by Australians.
“That’s why we’ll be introducing legislation this fortnight on cost of living measures, including for cheaper medicines and cheaper childcare,” he said on Tuesday.
He also said that was why the government put forward a submission to the Fair Work Commission to increase the minimum wage, and why pension and social security payments increased this month in line with inflation.
“We understand the pressures that people are under, and we wanted to undertake measures that alleviate cost of living pressures,” he said.
Following the bank’s announcement shadow treasurer Angus Taylor released a statement saying the government should respond to cost of living challenges by “developing a comprehensive plan to avoid making a bad situation worse.”
“Paying bills, feeding families and making mortgage repayments is becoming increasingly difficult but Labor still has no plan to help Australians through the tough times ahead,” he said.
“By Christmas – a time when Australians are wanting to spend money on gifts for loved ones, getting together with family and going on holidays – the pain of the rate rise will really start to sink in.
“The government doesn’t want to talk about the cost-of-living crisis because it doesn’t have a plan.”
On Twitter Greens’ treasury and economic justice spokesman, Nick McKim, posted that Dr Lowe had “induced hundreds of thousands of Australians into taking out mortgages by saying that interest rates would not rise until 2024, unless there was sustained wages growth.”
“Having failed to keep that commitment, he should now resign,” wrote Mr McKim.
