2022-2024 Australian Interest Rate Rise? How it Will Effect You

While the RBA held the official cash rate at 0.10% this month – and reaffirmed its position that it does not expect to lift the cash rate until 2024 – there is growing speculation the next cash rate hike could come as early as 2022. This comes as their most recent Statement of Monetary Policy in August affirmed supporting record low cash rates to address labour market slack and redirect inflation into the 2-3% target range. However, there is increasing inflationary pressure, both from supply chain constraints being lifted and a surge of post-pandemic demand for services.  After 18 straight RBA cash rate cuts, it can be easy to dismiss the notion that interest rates might rise again. But if the cash rate returned to mid-2019 levels, how much extra would an average new mortgage holder expect to pay each month?  In this article, we will run through what the major Australian institutional banks think of where the RBA’s cash rate os going, and what they will do to your mortgages, debt portofolio and Australian interest rates.

Forecasts from the Big Australian Banks:

All major institutional banks, as of mid-2021 at the earliest, believe there going to be an increase in the Reserve Bank of Australia’s cash rate. In June, Commonwealth Bank and Westpac predicted a rate hike around late 2022 to early 2023. In fact, they expect the official cash rate to hit 1.25% in the third quarter of 2023 and 2024, respectively. In fact, they expect the official cash rate to hit 1.25% in the third quarter of 2023 and 2024, respectively. Now, to put it in perspective,  it has been June 2019  RBA’s cash rate target was at 1.25%, It’s hard to imagine that interest rates could rise from the comfort of the current record low cash rate. In fact, you have to go back as far as November 2010 to when the RBA last increased the cash rate (to 4.75%). We’ve had a run of 18 straight cuts since then. So, most banks are not buying the Reserve Bank of Australia’s idea of holding cash rates.

How Have the Big Banks Reacted to This Predictions of RBA Cash Rate Rises:

NAB, as early as June, has hiked its 2-,3- and 4-year fixed rates by up to 0.10% for owner-occupiers paying principal and interest. Banks increase fixed rates as a way of heading off potential RBA rate hikes. Generally, the shorter the term of the fixed-rate that’s increased (ie. if 2-year fixed rates are increased), the sooner a bank may believe the next rate hike will be. Generally, major institutional banks make rates towards the predictions of rate rises. In the end, the major institutional banks have reacted to the rate rise with subsequently coordinated rises in fixed-rate mortgages in unison.

How do the Australian bank’s interest rate rises translate to yourself? 

So if the Australian big banks’ economists are onto something here, how much extra money should you be factoring into your monthly mortgage repayments if the official cash rate rises to 1.25% by 2023/24?

Well, Modelling from Canstar, published on Domain, shows the average variable mortgage rate would lift from 3.21% to 4.36%, based on the current margin between the two rates. Now, if you took out a $500,000 loan tomorrow, and the cash rate hit 1.25% in 2024, that modelling estimates your monthly repayments would increase $300 to $2464 per month. ABC News modelling covers a similar scenario, with repayments up to $324 per month. That’s despite reducing your remaining loan balance to $468,770 after three years of repayments, and assuming the banks only add on the cash rate increase – and not any extra.

And then there’s of course the possibility that further RBA cash rate increases could soon follow. If, for example, the average variable loan rate increased to 7.04% in 2031, where it was just a decade ago in 2011, Canstar estimates that the same borrower who took out a $500,000 loan would pay $900 more in monthly repayments than they do now – even after a full decade’s worth of repayments. So, when Australian interest rates rise as a result of RBA Cash rate, there is significant more stress on your mortgage payment.

What should you try to do when Australian interest rates rise?

When planning in an environment where interest rates are expected in the future, there are a myriad of decisions you can do to act yourself on. Here are some suggestions below. 

1. Go with Fixed-rate mortgages in the Immediate period: When Cost Effective: While fixed-rate mortgages do have a price premium for more stable rates, these come from an expectation of stability of payments. Fixed-rate mortgages, when compared to variable-rate mortgages, are more stable (thus easier to plan a budget towards), and by definition not affected by future rate rises. You should always then take into account future rise in mortgage rates from RBA Cash Rate Rises.
2. Have Lower Expectations for Property Price and Other Asset Price Growth: Central Bank cash rates are highly linked towards asset price growth, as cash rate decreases the circulation of money throughout the Australian economy. So, they maybe price-slowdowns (not necessarily price corrections) in an array of asset classes, making any future expectations of price rises grader to predict. 
3. Utilizing a Mortgage Broker for Financing: Using a mortgage broker, who is experienced in aspects of market fluctuations, can mean greater longer-term planning ability for any housing purchase. This means that each of the asset rate rises will be derived from each of the interest 

We can run you through all your personal options for yourself with ourselves at Limitless Loans, an experienced mortgage broker involved with the tasks of consulting clients throughout the 

It’s hard to imagine that interest rates could rise from the comfort of the current record low cash rate, but being prepared through budging and investment planning could make you smarter than the average Australian property investor or first home buyer.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.