How high will Australian interest rates go in 2022?

Woman banking on her smarthone.

With this month’s 50 basis point increase, the Reserve Bank of Australia has offered the clearest sign yet that it’s eager to normalise interest rates. But just how high is the central bank willing to go?

In a recent research note, Westpac chief economist Bill Evans said the RBA will likely repeat this month’s decision with another 50 basis point increase in July and follow that up with a 25 basis point increase in August.

But things won’t stop there. After pausing to review the impact of such an aggressive series of rate hikes on the economy, Westpac economists believe the RBA will deliver another two 25 basis point increases in November and December.

This strong tightening bias would leave the cash rate sitting at 2.1% by the end of 2022 — a full 200 basis points higher than it was when the year began. According to Westpac, the tightening cycle will then peak at 2.35% following a final hike in February 2023.

What will this mean for home loans?

In short: unless you’ve already fixed your home loan, expect your interest rate to go up. Within a day of the RBA’s latest announcement, all four major banks notified customers that they will be raising variable rates in line with the cash rate, and other lenders will most likely follow suit.

Higher interest rates will translate to higher monthly repayments, so some budgeting might be in order. To work out how much more you could be paying, use our rate change calculator below.

Rate change calculator

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Rate change

Repayment change if rates go up

As for fixed rates, lenders had been making adjustments well in advance of this week’s RBA decision, but that doesn’t mean they won’t continue to rise. Just last month, 76 of the 90 lenders we track revised their fixed rates upwards.

So do fixed rates still represent the decent value they might have earlier in the year? Mozo’s banking expert Peter Marshall said that borrowers should be wary of another turn in the rate cycle given the current volatility in the global economy.

“While high inflation is a key feature of the global economy at the moment, it will probably drop off over the next 12 months and there’s a chance we’ll enter a more recessionary environment,” he said.

“If that happens, currently rising global interest rates will go into reverse. So anyone locking into a five-year fixed term for their home loan now might find that well before those five years are up, they’re paying quite a bit over the market rate.”

What will this mean for property prices?

Rising interest rates are expected to have a dampening effect on property prices. That’s because as borrowing costs go up buyers are forced to set their sights on cheaper homes, while many get discouraged and exit the market altogether.

This will hit major east coast markets the hardest. Economists at Commonwealth Bank recently warned that Sydney dwelling prices could fall by 11 per cent this year and 7 per cent in 2023, and Melbourne prices are expected to see a similar result.

Earlier this month, CoreLogic research director Tim Lawless pointed out that quarterly growth rates in national dwelling values have been trending downward since their May 2021 peak.

“Since then, housing has been getting more unaffordable, households have become increasingly sensitive to higher interest rates as debt levels increased, savings have reduced and lending conditions have tightened,” he said.

“Now we are also seeing high inflation and a higher cost of debt flowing through to less housing demand.”

For more information, visit our RBA interest rate tracker page. And if you feel that refinancing is in order, be sure to visit our home loan comparison page, where you’ll be able to filter your search by rate and type.

Home loan comparisons on Mozo - last updated 6 July 2022

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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