Property plummets as home loan costs rise: will the RBA hike the cash rate in September 2022?
What used to be a shock now comes as routine. After three massive 0.50% rate hikes in a row, property prices have plummeted and home loan holders are feeling the squeeze.
Has the Reserve Bank of Australia gone far enough in their efforts to curb inflation – or is there more still to come?
Let’s break down the predictions for September’s RBA decision.
What’s the likelihood of a September interest rate hike?
Unfortunately, pretty high. Headline inflation hasn’t cooled to within the RBA’s target band of 2-3%, and until that happens, the central bank will likely continue to raise the official cash rate.
“I don’t think there’s any chance they won’t move,” says Mozo banking expert Peter Marshall. “The only question is will it be 0.25% or 0.50%.”
How high will interest rates go this time?
All four Big Banks predict a 0.50% September hike, which would be the fourth major rate hike in a row. This would lift the cash rate into ‘neutral’ monetary territory at 2.35%. The big banks have forecasted a long-term cash rate peak of 3.35% by February 2023.
However, many experts agree there’s room for a gentler rise after the September meeting, with October following at a more moderate 0.25%. There’s also a possibility the RBA will only move by 0.25% in September since the housing downturn has been worse than expected.
RELATED: Property prices have fallen, so is now a good time to buy in?
“Part of the debate at the moment is around whether the RBA’s neutral cash rate target is actually neutral or quite contractionary, given the way the world economy is at the moment,” explains Marshall.
“I think most economists are now thinking we’re already seeing contraction, so pushing rates higher is just going to amplify that effect.”
While the RBA has consistently maintained the vast majority of households are in a good position to handle the hikes, the stress reported by consumers from the rising cost of living might suggest otherwise.
Given its desire to stamp out inflation, however, we’re likely to see another 0.50% from the RBA tomorrow – and further ripples in the housing market.
Loan details
Repayment change if rates go up
Any chance of no rate hike, or a rate cut?
Despite a record low unemployment rate, wages still haven’t nearly increased enough. So while the RBA probably will lift the cash rate in September, there’s a strong argument to be made for a more dovish approach.
According to the Australian Bureau of Statistic s, there’s been a 3.5% gap between the growth rate of prices and salaries in the past year – a small number revealing a wide chasm. If people don’t earn enough to handle rising interest rates, then another dramatic hike could put the economy into a recession – which would justify a rate cut.
“The RBA has a long history of being terribly optimistic,” says Marshall.
“There are charts showing what the RBA has forecast for wage growth versus actual wage growth, and it has always overshot. So whatever it’s doing doesn’t seem to give it a terribly accurate read.”
Besides, borrowers aren’t the only ones affected by hikes: landlords have been passing along the costs to tenants, too, contributing to a 10% rise in rent over the last year.
If the RBA continues to only use mortgage payments and lagging salary indicators as bellwethers for economic health, it may miss a crucial part of the picture.
How will banks respond to a September RBA cash rate hike?
So far, 98% of lenders in the Mozo database have increased their home loan interest rates in response to the RBA’s August decision. Of those who made changes:
- 75% passed along the full rate hike.
- 22% passed along a partial or no hike.
- 2% opted for a hike bigger than the RBA.
- 2% have yet to announce changes.
Since the RBA began increasing interest rates back in May, 61.5% of lenders tracked by Mozo have passed along the full rate hike every time. Among these lenders are the big four and most major competitors.
If the RBA moves again in September, this means the majority of borrowers can likely expect another hit to their variable rate mortgage, unless they fix or refinance.
What will another rate rise mean for home loan borrowers?
Borrowers have been taking the brunt of the RBA’s efforts, so another 0.50% rate means higher monthly repayments. Those with an offset account and free extra repayments with a redraw facility should make the most of those features now, as both features can help you save on interest.
Term deposits and savings accounts have also seen some beneficial increases in response to the RBA. If you’re thinking of finding a better way to park your money, compare savings rates to see if there’s a better deal out there.
RELATED: Why understanding monetary policy can help you save money
We’re getting to the thorny end of the RBA’s tightening cycle now. Proactive steps today could make all the difference tomorrow.
Stay on top of rate movements with Mozo’s new interest rate tracker. You can also see how rate changes affect your mortgage repayments with our rate change calculator.
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