It's touch & go: Aussies brace for December rate hike

• The RBA is expected to increase the cash rate 25 bp, taking the cash rate to 3.10% on Tuesday, a yearly increase of 300 basis points
• A quarter of borrowers are living paycheck to paycheck
• Number of lenders passing on more than the RBA’s rate hike has increased in the last two months
• Average variable interest rate is 5.41%, ahead of the final RBA meeting
• If lenders pass on the 25 bp rate increase, the average interest rate for a $500,000 mortgage will be 5.66%, seeing mortgage holders pay $3,118 a month, up from $2,220 at the start of the year when the cash rate was 0.10%

New research from comparison site Mozo.com.au has found that one-in-five borrowers confess that paying their mortgage will be ‘touch and go’ over the next six months. This comes as they brace for one final rate rise, with the RBA expected to increase the cash rate by 25 basis points next Tuesday.

“After a year of relentless rate rises, it’s no wonder households are really battling to pay their mortgages. Most borrowers were not expecting rate rises to kick in until late 2024, but this final push from the RBA means that most mortgage holders will experience a massive 300 basis point increase to their variable home loans this year,” says Claire Frawley, Mozo Personal Finance Expert. 

The Reserve Bank of Australia has recently received criticism over the rapid increase to cash rate in the Senate estimates.

While some mortgage holders have been able to adapt to higher interest rates, many people are at the other end of the spectrum. Mozo research found that a quarter of borrowers are living paycheck to paycheck. 

“Aussies are already stretched thin so this last rate rise of the year is really going to hurt and many people will be faced with deciding which expense to cut out this month to be able to meet their mortgage repayments.”

“Now is the time to call your lender and negotiate a better interest rate or refinance if they won’t budge. This one last finance chore could make a big difference to your budget.”

Unpredictable response from lenders

Banks appear to be using a variety of measures in the wake of the rate hikes, with some lenders cutting rates shortly after increasing them, while others are going beyond the hikes. Some lenders have also introduced smaller increases to their borrowers on lower LVR tiers.

This week ANZ cut variable rates for customers, after increasing them earlier in the month following the RBA’s cash rate rise.  In the past two months, seven other lenders have also cut rates after increasing them to follow the RBA cash rate increase.

Following the September rate increase, more lenders started to pass on more than the rate hike amount to customers, leaving less providers passing on just the rate hike amount. 

A handful of lenders, including Commonwealth Bank, Macquaire and St. George, have started to pass on different amounts to customers depending on their loan-to-value ratios (LVR). Customers with 60% LVRs are only receiving a partial rate increase, while those with a 80% LVR or higher are receiving the full rate hike amount. 

“Lenders are rewarding customers who have paid off more of their mortgage and have a lower loan-to-value ratio. While this is good news for those with more equity in their homes, it doesn’t help borrowers who have just taken on a mortgage.” 

How much will repayments increase?

The average variable home loan rate for owner occupiers across the Mozo database is 5.41%, which is 234 basis points higher than the average in January, which was 3.07%

If lenders pass on the 25 basis point increase in December, a borrower with a $500,000 mortgage, on the average variable rate, would be paying $3,118 a month. This is an increase of $918 since the start of the year when the cash rate was 0.10%.

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