How high will interest rates go? New forecasts from Westpac and NAB

Collage of a man walking a rising graphline on a field of red.

In the past few months, the home loan market has been rocked by a series of rate hikes thanks to efforts from the Reserve Bank of Australia (RBA) to stomp runaway inflation. 

Now, experts from Westpac and NAB predict the dust will settle in February 2023 with an official cash rate peak of 3.35% – but getting there means even more rate hikes loom on the horizon.

RBA rate hike movements, play by play

A white model house on a rising line against a field of blue -- interest rates going up.

To reach the terminal rate early next year, Westpac forecasts another 50 basis point hike in August, which would put the cash rate into ‘neutral’ economic territory at 1.85%. This will then be followed by a series of ‘contractionary’ movements into summer as the central bank aggressively tightens the reins on inflation (which NAB reckons will peak at a distressing 7.1% in Q4).

While Westpac originally predicted the RBA might temporarily hold off on a rate hike in September, it now believes without sufficiently slowing inflation, the RBA may have their hand forced into making a 50 bp rise. This means we could see the cash rate lift to 2.35% by October, when we will likely be fully in the throes of a slowing and mortgage stressed housing market. 

But could these hawkish predictions spell something worse for the economy?

“Everyone’s anticipating variable interest rates will go as high as 6% to 7% right now, and it’s certainly not out of the question,” explains Mozo expert spokesperson Peter Marshall. “Someone with savings and no loan might be cheering that idea, but there’s plenty of risk in the world economy at the moment, so I don’t think the Reserve Bank’s path is as clear as they think or say it is.” 

According to Marshall’s vibe check, the primary danger is overdoing it. “If the RBA hike rates too fast, they may well just cause everyone to close their wallets, stop spending, crush the housing market, and we could be in a recession next year.”

RELATED: How worried should we be about rate hikes?

Trouble may already be brewing as mortgage repayments rise and borrowing power diminishes. If mortgage holders begin defaulting on their payments, the Australian economy will be in serious trouble. This will force the RBA to slash the cash rate and undo their tightening efforts in favour of an emergency boost to the economy. 

While there’s no fixed certainty the economy will tank, the risk lingers behind every bold move from the RBA, especially since inflation has been driven more by supply-side disruptions than the usual suspect, consumer demand. 

“What we can see right now says rates are going up for a couple of years,” comments Marshall, “but I don’t think it’s a done deal.”

In the meantime, with the cash rate currently resting at 1.35%, mortgage borrowers will continue watching the RBA with clenched teeth and bracing for further hikes. Those hoping for a reprieve just may be disappointed for now.

Loan details

Rate change

Repayment change if rates go up

Stressed about mortgage repayments? Time to get proactive

A woman dances against a blue background because she's got her mortgage under control.

An era of rate hikes has its advantages – if you know how to lean into monetary policy – and there are plenty of great strategies you could take for keeping your mortgage within your budget. So roll up your sleeves: it’s time to get proactive. 

If you already have a mortgage:

  • Get an offset account – and fill it up. While more common with variable home loans, an offset account could save you bundles on interest. 
  • Compare interest rates, and if you find something better, refinance. If you’re in a position to refinance, comparing what’s out there could clue you into deals with better rates, features, and support. 
  • Climb aboard the savings train. Home loan rates may be up, but thankfully, so are savings accounts. In fact, according to Peter Marshall, the term deposit war has only just begun. If you’re considering making the switch, you could start by comparing these high interest rate savings options.

If you’re looking to buy property:

  • Let the government help you out. Every state in Australia has first home buyers grants and schemes aimed at improving access and affordability. On a national level, the Labor government has also announced its new Help to Buy scheme.
  • Show lenders you’re a good bet. Lenders aren’t keen on approving applications from risky borrowers, so if you can, take steps to pay off your debt, save for a bigger deposit, and be mindful of your credit history.
  • Walk into the auction with your head held high. High interest rates cool competition at auctions, so sellers may be more willing than you think to privately negotiate a price – and accept lower offers than normal. So if house prices have fallen in your area, the ball is in your court.

How much will $1 million buy in Australia's capitals? We compared the market so you don't have to.

Compare low interest home loans - last updated 13 August 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.

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