The Reserve Bank has left the official cash rate on hold near zero, but borrowers are already bracing for what life may look like with higher mortgage interest rates.
Sophie Miller and her partner Trent Williams are among them, after buying their house in Adelaide two years ago.
Their household budget has since gotten tighter after the birth of their first child, which has seen expenses rise and Sophie's income decline while she is on maternity leave.
"[A rate rise] is certainly something that I've been quite worried about," Ms Miller said.
"Even if doesn't rise, we have to make a little bit of extra wiggle room in our budget, because life and household expenses are so high at the moment.
It is an experience more than a million Australian mortgage borrowers, like Sophie and Trent, have never had to cope with.
The Reserve Bank's benchmark interest rate has been at 0.1 per cent since November 2020, and has not risen since November 2010 when it reached 4.75 per cent.
However, most analysts expect an interest rate rise by August, with some expecting the first rate increase in June, and a few even suggesting it could happen next month.
'Tough budget cuts' to cope with rising rates
Analysis by financial comparison website RateCity shows a borrower with 25 years left on a $500,000 mortgage can expect to pay just over $300 a month in extra repayments by March next year, if interest rates rise in line with the Commonwealth Bank's (CBA) forecasts.
CBA is tipping the cash rate will be 1.15 percentage points higher by then at 1.25 per cent.
A survey of about 1,000 mortgage borrowers conducted for RateCity has revealed that the Miller-Williams household is far from alone in worrying about how it will afford rising rates.
The survey found that almost a third of borrowers would have to "make significant cutbacks" to their spending to meet the extra repayments, with another third needing to make "minor cutbacks".
Worryingly, 14 per cent of respondents said they "would not be able to afford the repayments", while less than a quarter said they could afford the increase without changing their spending habits.
"People who overstretched themselves to get into the property market recently could feel the heat of the upcoming rate hikes," RateCity's Sally Tindall said.
Younger households, most of whom would have purchased their home more recently, were more vulnerable according to the survey.
Just 18 per cent of 25-34-year-olds and 21 per cent of 35- to 44-year-olds said they could cope with a $300 a month mortgage repayment increase without any spending cuts.
Meanwhile, 31 per cent of 45- to 54-year-olds and 26 per cent of 55- to 64-year-olds said they would be able to absorb the extra cost.
Ms Miller said, for her household, a few rate rises would not break the bank, but it would mean they would have to spend less.
"Having another $300 out of your budget each month would be significant," Ms Miller said.
"And, as a new mum, I'm really conscious of wanting to socialise for myself."
RBA not 'patient' anymore
Ms Tindall said this kind of economic flow-on effect would likely cap the number of rate rises the Reserve Bank would implement.
"While the markets are currently predicting the cash rate will be over 3 per cent in 18 months' time, it's near impossible to see the RBA going that high in this time frame," she argued.
"A lot of people who bought recently are already mortgaged to the hilt and the RBA is acutely aware of this. The central bank is not going to hike the cash rate so far and so fast that people start defaulting on their mortgages en masse."
Reserve Bank governor Philip Lowe does seem to be on the same page.
"Rising prices are putting pressure on household budgets and the floods are causing hardship for many communities," he observed in his post-meeting statement.
However, the statement also dropped the phrase that the board was "prepared to be patient" before lifting interest rates, which many economists had flagged ahead of the meeting as a sign that a rate rise was drawing near.
Balancing against this was Dr Lowe's reference to evidence "over coming months", implying that a move was not imminent in May, or perhaps even June.
"Inflation has picked up and a further increase is expected, but growth in labour costs has been below rates that are likely to be consistent with inflation being sustainably at target," he said.
"The board will assess this and other incoming information as its sets policy to support full employment in Australia and inflation outcomes consistent with the target."
Nonetheless, the absence of "patient" was enough to see many analysts who had been a rate rise not to come until later this year to bring forward their forecasts.
"We look for the RBA to tighten by 15 basis points in June (previously September) with follow-up 25-basis-point rate hikes in July and August," said ANZ's head of Australian economics David Plank.
"We see another 25 basis points in November, which will take the cash rate target to 1 per cent by the end of 2022.
"From there we expect 25-basis-point rate hikes in each quarter of 2023, taking the cash rate to 2 per cent at the end of 2023."
COVID pandemic's 'polarising effect'
The Reserve Bank is juggling a very divided economy, between those who are struggling post-COVID and those who have sailed through the pandemic, financially at least.
RateCity's research found almost a quarter of home loan borrowers would still be able to afford an extra $300 a month in repayments without changing their spending habits at all.
These are likely the same group of people behind statistics from the banking regulator APRA showing that money saved in offset accounts is at a record high of $232 billion.
"COVID has had a polarising effect on family budgets over the last two years. While some households are struggling to make ends meet, others have more money saved in their home loan than ever before," Ms Tindall said.
"According to APRA, the average borrower is 45 months ahead on their mortgage repayments – that's almost four years ahead on their debt.
"These people have big buffers to fall back on if they can't find enough money in their monthly budget to pay the bills, and that's a good thing."
