If you’re new to the property market, and an estimated one million of you are, you are about to experience your first-rate hike. This time earlier than predicted, at least according to the Commonwealth Bank (CBA) who have just brought their interest rate increase estimation forward from August 2022 to June 2022.
Why have they brought it forward? It’s a mixture of things but the main culprit being the now record levels of the costs of living, which is a sure sign of inflation. This will therefore put pressure on the Reserve Bank to call a rate increase as one of the RBA’s roles is to monitor and control inflation as much as possible.
In a statement made by RBA Governor Philip Lowe before the House of Representatives Standing Committee on Economics, he discussed supply chain issues and the rising rates for cars and electronics.
“So we want to see how that goes, and I think these uncertainties are not going to be resolved quickly,” Mr Lowe said. “We are prepared to take the time, particularly given our inflation history and the prospect of low unemployment.”
It was this statement that changed CBA’s mind about when rates would rise. Gareth Aird, CBA’s head of Australian economics, wrote, “We interpret this statement to mean that the RBA will conclude that inflation is ‘sustainably within the target range’ if the next two inflation prints are in line with their forecasts, provided wages growth continues to accelerate and the labour market further tightens, as we expect. Based on the Governor’s comments last week we believe the RBA’s central scenario and reaction function is consistent with a first increase in the cash rate in August 2022.”
Gareth Aird also wrote, “we estimate there are over one million home borrowers who have never experienced an increase in mortgage rates.”
The official cash rate has been at a record low of just 0.1% since November 2020 as a response to the pandemic, but it is expected that will jump up by 1% by the end of 2022 and then 1.25% in 2023. A 1% rise doesn’t sound like that much, but it could mean hundreds, if not thousands in some cases, extra every month on your mortgage repayments.
Those with variable rates will feel the impact immediately but those on fixed rates will not be spared either. Mr Aird believes that $500 billion worth of fixed home loans are set to expire over the next two years which will mean those loans will also be affected by the rate hike.
August is still the month most economists have marked out for the hike but who knows, maybe the CBA is right. Regardless, it is important to be ready for a rate hike and if you need to refinance within the next two years, be sure to speak to a broker at It’s Simple and ensure you are making responsible financial decisions.