RBA slams market with 0.50% August rate hike. How will lenders respond?

By Alex Gillezeau, Niko Iliakis and Evlin DuBose
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RBA Governor Philip Lowe looking nervous about rate hikes.

Mortgage holders will be bracing for their monthly repayments to push even higher, following the Reserve Bank of Australia’s decision to jack up interest rates by 50 basis points this month. 

This is the fourth consecutive month the RBA has lifted the official cash rate, taking it from near zero — where it remained as the country rode out the worst of the pandemic period — to 1.85 per cent.

The decision comes as inflation rose to 6.1 per cent over the June quarter, as revealed by ABS data released last week. On non-discretionary items price rises were higher at 7.6 per cent.

“The Board places a high priority on the return of inflation to the 2–3 per cent range over time, while keeping the economy on an even keel,” RBA governor Philip Lowe said in his post-meeting statement.

“The increase in interest rates over recent months has been required to bring inflation back to target and to create a more sustainable balance of demand and supply in the Australian economy. The Board expects to take further steps in the process of normalising monetary conditions over the months ahead, but it is not on a pre-set path.”

While inflation is causing headaches in Australia, it’s wreaking even greater havoc in other advanced economies. Data from June showed annual inflation picked up to 8.6 per cent in the Eurozone, 9.1 per cent in the US, and 9.4 per cent in the UK.

Last week, the US Federal Reserve lifted its own policy rate by 75 basis points, with Fed chair Jerome Powell leaving the door open to further large rate hikes if price rises persist.

Any moves by the Fed will loom just as large over the RBA as domestic inflation, given the capital outflow and currency depreciation that would result from diverging monetary policies.

“It's not all about mortgages and savers in Australia. It’s also about how competitive Australia is at attracting foreign money,” said Mozo’s banking expert Peter Marshall.

What does this mean for mortgage holders?

In a recent speech, RBA deputy governor Michele Bullock claimed that the majority of households will be able to handle higher repayments, pointing to the $260 billion in savings that Australians had accumulated over the pandemic period.

But surging interest rates will still test borrowers’ limits. Assuming lenders pass on today’s hike to their customers, the average variable rate in our database will jump to 4.60% p.a. (up from 3.07% p.a. at the start of the year).

Marshall says Australians who bought when property prices were at their highest will be most vulnerable, particularly if they’re not in a position to refinance. 

“It’s a classic trap of buying late in the cycle, there will be some people who just can’t afford to keep a roof over their heads anymore,” Marshall said.

“That potentially means a lot of rushed property sales, and if that happens when prices are sliding, then the payout is smaller and you’re left with potentially hundreds of thousands of dollars of useless debt.”

Borrowers coming off fixed rate loans will also have to review their budgets, with the RBA estimating that the variable rates they roll over to could see their repayments go up by 40 per cent or more.

For these customers, the key to managing higher repayments won’t be much different than it is for other borrowers.

“If you have an offset account, make good use of it when you can. If you’re paying 4% p.a. on your mortgage, there’s no way you can get a comparable rate on your savings unless you’re looking at a 5-year term deposit,” Marshall said.

“And if you don’t have an offset account, making additional repayments or putting in the legwork and investigating cheaper mortgage options are some of the best things you can do.”

We’ll be keeping track of how banks respond to the RBA’s decision as word comes in. For more information, visit our RBA rate tracker page or our home loan comparison page.

Home Loan Old rate New rate Effective date Rate change Naughty or Nice
AMP Bank Variable Rate Loan (Owner Occupier, Principal & Interest, LVR <90%) (Basic Package)
4.14 4.64 12 Aug 2022 0.5
ANZ Index Variable Rate (Owner Occupier, Principal & Interest)
5.64 6.14 12 Aug 2022 0.5
Athena Liberate Variable Home Loan (70-80% LVR, Owner Occupier, Principal & Interest)
3.39 3.89 4 Aug 2022 0.5
Aussie Select Basic Variable (LVR>90%, Owner Occupier, Principal & Interest)
4.24 4.74 11 Aug 2022 0.5
Bank Australia Basic Home Loan (LVR>90%, Owner Occupier)
4.25 4.75 18 Aug 2022 0.5
Bank of Queensland Clear Path Variable Rate Home Loan (Owner Occupier, Principal & Interest)
5.24 5.74 9 Aug 2022 0.5
Bankwest Mortgage Shredder (Owner Occupier, Principal & Interest)
6.0 6.5 12 Aug 2022 0.5
Bendigo Bank Variable Rate Residential (Owner Occupier, Principal & Interest)
6.03 6.53 12 Aug 2022 0.5
Beyond Bank Standard Variable Home Loan (Owner Occupier, LVR<90%)
5.7 6.2 16 Aug 2022 0.5
Citi Standard Variable (Owner Occupier, LVR <80%)
6.35 6.85 12 Aug 2022 0.5
Commonwealth Bank Standard Variable Rate (Owner Occupier, Principal & Interest)
5.8 6.3 12 Aug 2022 0.5
Great Southern Bank Offset Variable (Owner Occupier, Principal & Interest, LVR >90%)
4.34 4.84 11 Aug 2022 0.5
Greater Bank Great Rate Home Loan (Owner Occupier, Principal & Interest)
4.91 5.41 10 Aug 2022 0.5
Heritage Bank Standard Variable (Owner Occupier)
5.74 6.24 11 Aug 2022 0.5
HSBC Standard Variable Rate Home Loan (Owner Occupier, LVR 80-90%) (Home Loan Package)
3.34 3.84 22 Aug 2022 0.5
IMB Bank Standard Variable Home Loan (Owner Occupier, Principal & Interest)
5.96 6.46 12 Aug 2022 0.5
ING Mortgage Simplifier (LVR>90%, Owner Occupier, Principal & Interest)
3.54 4.04 9 Aug 2022 0.5
loans.com.au Smart Home Loan 90 (Owner Occupier, Principal & Interest)
4.04 4.54 5 Aug 2022 0.5
ME Flexible Home Loan (Owner Occupier, LVR 80-95%, Principal & Interest)
5.86 6.36 6 Aug 2022 0.5
Macquarie Offset Home Loan (Owner Occupier, LVR 80-90%, Principal & Interest) (Package)
3.94 4.44 12 Aug 2022 0.5
NAB Tailored Home Loan (Owner Occupier, Principal & Interest, LVR <95%)
5.77 6.27 12 Aug 2022 0.5
Newcastle Permanent Real Options Home Loan (Owner Occupier, Principal & Interest)
5.5 6.0 12 Aug 2022 0.5
RAMS Full Feature (Owner Occupier, Principal & Interest, LVR<95%)
5.86 6.36 18 Aug 2022 0.5
St. George Standard Variable Home Loan (Owner Occupier, Principal & Interest, LVR 80-95%)
5.81 6.31 18 Aug 2022 0.5
Suncorp Standard Variable Loan (LVR<95%, Owner Occupier, Principal & Interest)
6.23 6.73 12 Aug 2022 0.5
ubank UHomeLoan - Discount Offer (Owner Occupier, Principal & Interest, LVR 80%-85%)
3.99 4.59 11 Aug 2022 0.5
Westpac Rocket Repay Home Loan (Principal & Interest, 70-80% LVR)
5.73 6.23 18 Aug 2022 0.5

Read last month's Reserve Bank interest rates update.

Home loan comparisons on Mozo

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

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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.

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    $3,027
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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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  • Fixed Rate

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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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