Handling RBA rate talk: are interest rate increases something to worry about?

By Evlin DuBose · · 4 min read
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It’s easy to get caught up in the moment. Rate hikes from the Reserve Bank of Australia have dominated home loan news for the last year, with much of the chatter hingeing on how this will impact variable interest home loans – and by extension, mortgage repayments. 

But while many Australians have good reason to be concerned about their mortgages, let’s keep things in perspective. Housing market fluctuations happen all the time, and the RBA isn't done raising rates yet. 

So while we may be in an uncertain moment, zooming out on the Australian property market will tell us how to handle the rate hike news – and plan for the future.

Our current housing market moment

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Honing in on a specific week in the housing market is like mistaking a single puzzle piece for the bigger picture. Cash rate hikes, as far as a tool of monetary policy goes, are quite a slow lever to stop inflation. It takes quite a few successive rounds of rate hikes to ripple across variable interest rates, from home loans to savings accounts, let alone cool down the economy.

In fact, we may only be just now experiencing the full effects from the rate hikes in 2022.

These effects can include:

  • Higher variable interest rates for home loans, savings accounts, and term deposits.
  • Costlier home loan repayments, especially for variable home loans.
  • Higher insurance premiums on mortgage protection policies.
  • Lower property prices, since expensive home loans put off many potential buyers and drag down property values.
  • Diminished home equity, which often follows property value drops. This can also make unlucky buyers prisoners of their own mortgage, as they don't have enough equity built up to safely refinance.
  • Constrained housing affordability, since higher interest loans price many Australians out of home-ownership while putting others under mortgage stress.
  • A rising cost of living, since housing costs contribute significantly to the Consumer Price Index (CPI).
  • Increased risk of a recession, since if the RBA overdoes it in their gamble to stop inflation, they must stop the economy too much. 

Variable rate home loan trends in Australia:

Those hoping to avoid the variable rate hike by fixing their home loans may find themselves disappointed, since fixed rates have largely had rate expectations priced into them as this point.

Fixed rate home loan trends in Australia:

Loan details

Rate change

Repayment change if rates go up

Property trends: how to read the housing market crystal ball

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Downturns are nothing new to the property market. Besides, there’s much more to consider besides rising interest rates when reading the housing crystal ball. If you look over the last thirty years of housing trends (the common life of a home loan), you’ll notice a few perspective-changing things. 

Firstly, housing prices will inevitably go up over time. Australian housing values have increased by nearly 415% since 1991, although they did experience their fastest rate of growth during the 2021 housing boom. So despite COVID, the GFC, and countless other global conflicts over that same time period, housing prices still escalated. For those looking ahead, this is critical to keep in mind.

Secondly, every boom is followed by a bust. Socioeconomic conditions create an ebb and flow in everything from property value to where popular demand lives. Higher demand will push up prices, then demand drops after the prices get too high, and so forth.

It can be both a comfort and an inconvenience to know things will never stay the same, but this also encourages caution to those leaping into a red-hot market. Your equity may diminish when prices fall, or you may have to budget for a hefty capital gains tax.

Even coastal erosion has jeopardised nearly $25 billion worth of beachfront property, which was one of the most popular areas to buy in the 2021 property boom.

Thirdly, the cost of housing finance greatly impacts the property market. Raising the cash rate escalates interest rates on home loans, which knocks on to how much buyers are willing to bid on the house of their dreams. Struggling sellers will have to compromise, thus lowering the final price. 

Inflation, the primary target of the RBA's rate hikes, clocked in at an eye-watering 7.8% over 2022, which means the market will require more intervention until conditions normalise. While property prices still haven't dropped below their pre-boom norms, buyers may have a window as conditions continue to change in 2023. 

While it’s part of the deal that you may save now to pay more later with a variable home loan, it’s important to stress test your mortgage because rates will always change. Budgeting for inevitable shifts instead of panicking about what’s happening now will put you in better stead with your mortgage repayments long-term, and may be key to breaking – and staying – in.

Keep a finger on the housing market’s pulse with our home loan interest rate comparison tool, or stay on top of rate increase news with our RBA rate tracker. 

Compare a selection of low interest home loan offers below.

Home loan comparisons on Mozo

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Last updated 27 July 2024 Important disclosures and comparison rate warning*

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    Variable
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    Initial monthly repayment
    $2,995
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    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

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    Variable
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    $3,043
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    Enjoy a low rate home loan with $0 application fee and $0 ongoing fees. Flexibility to split your loan and set different repayment types. Fee free redraw from your loan using online banking. Flexible ways to repay. 40% Deposit required.

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    Variable
    Comparison rate
    6.11 % p.a.
    Initial monthly repayment
    $3,027
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    Competitively-priced variable rate loan. Ideal for owner occupiers and investors. No service fees to pay. Make free extra repayments and redraws. Flexible repayment schedule available.

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    6.13 % p.a.
    Initial monthly repayment
    $3,027
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    Refinancers or first home buyers pay no monthly or annual fees. Up to $3,000 cashback when you complete your home loan application online. $2,000 cashback on loans ≥$250K; or $3,000 cashback on loans ≥$500K. LVR ≤80%. T&Cs and credit criteria apply.

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    • Owner Occupier
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    5.90 % p.a.
    Initial monthly repayment
    $2,995
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    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • OMG Home Loan

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    6.02 % p.a.
    Initial monthly repayment
    $2,995
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    BCU Bank’s OMG owner occupied home loan offers a variety of great low rates depending on your deposit. Save with no ongoing annual fees. Access your extra payments when you need to through the redraw facility. Pre-approval valid for 3 months.

  • Flex Home Loan

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    Fixed 3 years
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    6.34 % p.a.
    Initial monthly repayment
    $2,995
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    Competitive Fixed rate. Multiple offset accounts available. Borrowers can also make extra repayments. Redraw facility available. Simple online application process. 40% deposit required.

  • Express Home Loan

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    6.01 % p.a.
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    6.14 % p.a.
    Initial monthly repayment
    $3,001
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    Get online approval from the award-winning Bendigo Bank Express Home Loan. Multiple offset accounts and redraw available. 100% offset on variable rate loans and partial offset on fixed rate. Flexible repayment options. New home loans only.

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    6.09 % p.a.
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    6.11 % p.a.
    Initial monthly repayment
    $3,027
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    Competitively-priced variable rate loan. Ideal for owner occupiers and investors. No service fees to pay. Make free extra repayments and redraws. Flexible repayment schedule available.

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    • Owner Occupier
    • Principal & Interest
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    Interest rate
    6.09 % p.a.
    Variable
    Comparison rate
    6.13 % p.a.
    Initial monthly repayment
    $3,027
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    Refinancers or first home buyers pay no monthly or annual fees. Up to $3,000 cashback when you complete your home loan application online. $2,000 cashback on loans ≥$250K; or $3,000 cashback on loans ≥$500K. LVR ≤80%. T&Cs and credit criteria apply.

  • Basic Home Loan

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    Interest rate
    6.14 % p.a.
    Variable
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    6.16 % p.a.
    Initial monthly repayment
    $3,043
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    Enjoy a low rate home loan with $0 application fee and $0 ongoing fees. Flexibility to split your loan and set different repayment types. Fee free redraw from your loan using online banking. Flexible ways to repay. 40% Deposit required.

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    Competitive variable rate. Multiple offset accounts available. Borrowers can also make extra repayments. Redraw facility available. Simple online application process. 40% deposit required.

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    6.42 % p.a.
    Initial monthly repayment
    $3,079
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  • Fixed Rate

    • Owner Occupier
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    • <80% LVR
    Interest rate
    6.54 % p.a.
    Fixed 2 years
    Comparison rate
    7.10 % p.a.
    Initial monthly repayment
    $3,174

    Enjoy up to $3000 cashback for eligible first home buyers and $2000 cashback for refinancers on eligible home loans with the ANZ Fixed Rate Home Loan. Get the security of repayment certainty with a competitive locked in rate. No ongoing fees to pay. Offset account on 1-year fixed loans ($10/month fee applies). Interest-only payments allowed.

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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. You can change the loan amount and term in the input boxes at the top of this table. 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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