RBA updates & how the latest increase impacts payments

The Reserve Bank of Australia recently announced another rise in the national interest rate, now making it 1.85%. This has happened continuously for the last four months, in part to keep up with the rising cost of inflation.

Prior to this, the RBA kept rates at record levels, dropping to a historic low of 0.1% in November 2020. This was done in a bid to give Australians some financial help during a time of uncertainty, crisis and fear.

And while some of Australia’s economic woes have lessened due to the reopening of the economy following the introduction of the COVID-19 vaccine, the soaring cost of household items is proving to be a tough pill to swallow for consumers.

In addition, since June of 2022, annual national inflation was at 6.1%, the highest recorded for 21 years.

How Does This Impact Home Owners?

When you borrow money to buy a house from a bank, there is interest on that loan, usually each month. Normally, banks don’t tend to raise interest rates on individual loanees right away and for some, it may be months before the agreed-upon interest rate is raised by the bank.

However, plenty of factors post-COVID have meant that the average cost of a home in various states in Australia have skyrocketed. Labour shortages and material shortages in the construction industry, combined with people moving interstate to escape lockdowns (the Queensland alone saw an influx of almost 60,000 people in the six months to March 2021, which resulted in property price increases of 50% or more in some regions.

Unfortunately, the rise in inflation rates and corresponding rise in national interest rates is going to make life very difficult for first-time homeowners. In fact, it may price them out of home ownership entirely. And for those who are already locked in, who own their own home but are still paying for their mortgage. With current rates, people are paying hundreds of dollars more each month more on their mortgage than they were just a few months ago.

Around the country, dozens of banks and lenderships will be increasing their rates by half a percent throughout the month of August. Experts predict an even further hike in the coming months, unless inflation can be curtailed through other means.

High interest rates are predicted for longer-term loans of more than a year – with a one-year loan capping out at 4.84% p.a, while a six-year fixed loan will cap at 6.29% per annum. This means that those borrowing money for longer terms will pay more interest per-year.

Ultimately, for potential homeowners, the higher interest rate and high cost of building their own home, may end up with them staving off their plans to buy at this time, meaning more prospective homes will sit empty, and maybe pre-paid homes will remain unbuilt.

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