With expectations of a rate rise by the Reserve Bank on Tuesday firming, the next question is how it will affect borrowers and those looking to buy.
CBA, Westpac, NAB and ANZ are all tipping a 0.25 percentage point rate hike, while NAB is predicting a second hike in May.
“For a typical owner-occupier with a $600,000 mortgage, a February hike would add around $90 a month to repayments,” said Canstar data insights director Sally Tindall.
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She said the first signs of a rate hike came in December when Reserve Bank Governor Michele Bullock suggested that a rate hike was on the cards.
“Since then, inflation has fallen off the tracks. Last week’s CPI figures saw trimmed mean inflation land at an annual rate of 3.4 per cent in the December quarter, “Ms Tindall said.
Meanwhile the majority of economists interviewed by comparison site Finder also predicted a rate rise on Tuesday.
“With rising inflation proving more stubborn than the RBA anticipated, most economists and the big four banks now expect a rate hike on Tuesday,” Graham Cooke, head of consumer research at Finder said.
What are the costs
Where you are in the lending cycle, can affect the costs you can expect with a rate hike, which would be the first in two years by the RBA.
If the bank passed on the 0.25 per cent interest rate in full, 5.77 per cent would be the new rate for owner-occupiers according to comparison site Canstar.
Investors would face a new variable rate of 6.02 per cent, and fixed and variable rates under five per cent would no longer exist.
When will higher rates kick in?
For those challenged by higher rates, the tough news is that they are already here.
Canstar research shows 60 lenders have hiked fixed rates since the December RBA Board meeting.
A rate rise this week, would see the end of lower-interest loans.
“If the RBA hikes tomorrow, home loan rates under 5 per cent are likely to be relegated to the history books,” Ms Tindall said.
“There are now just six lenders offering fixed rates under 5 per cent. A February hike would almost certainly close the door on the last remaining options.”
How would this effect home prices?
When rates go up, property prices can also expect to be affected.
When rates go up, property prices can also expect to be affected. Pic: Shutterstock Credit: View
“A rate hike may impact middle tier properties a little more significantly, and may push more buyers towards lower quartile homes in the search for affordability,” said Cotality Head of Research in Australia, Gerard Burg.
That is because borrowers would be able to borrow less when looking for a new home.
“For the median income household, we estimate that a 25 basis point increase will lower their borrowing capacity by around $18,000,” he said.
“Similarly, a hike would see the average new borrower paying an additional $110 per month in repayments.”
LJ Hooker Group Head of Research, Mathew Tiller, said while an interest rate rise would affect house prices, it would not create a big change.
“For the housing market, a hike should cool momentum rather than turn it,” Mr Tiller said.
“Demand remains supported by jobs, population growth, and active investors, while listings remain tight, so we may see decision time slow and price growth moderate.”
