Interest rate rises will push household budgets

Homeowners are bracing as interest rate rises are predicted to add $500 a month to an average mortgage – but it could be good news for house hunters.

Home owners are being warned to brace for interest rate rises that could see them fork out about an extra $500 more per month to service a $500,000 loan.

Sally Tindall, research director of comparison website Rate City, said under Westpac’s latest forecast, the Reserve Bank’s cash rate would rise from .10 per cent to .50 per cent in July.

This would increase to 1.5 per cent by February, and 2 per cent by June 2023.

The interest rate rises flowing on from that would mean that the owner of a home tied to a $500,000 loan, with a 25-year term remaining, would pay about $104 more each month from this July. By June 2023, that would escalate to $509 extra per month.

“If you look at the data, a lot of Australians have spent the last two years during Covid saving money and … these people are well placed to take these rate hikes on their chins,” Ms Tindall said.

In February, the valuer-general’s figures revealed Adelaide’s median house price had reached $600,000.

“People who might have overstretched themselves to get into an overheated property market will feel the heat of these rate rises,” Ms Tindall said.

She said savers would win out once interest rates started climbing again.

“People are getting peanuts on their hard-earned cash,” she said.

“When the rate hikes do come, hopefully the banks will pass it on to savers. My concern is that we have more money in the bank than ever.

“Banks will find it tricky to pass on the full cash rate to savers because they have so much money in the bank.”

The other winners would be house hunters, who could benefit from a house price drop following interest rate hikes.

“This could be a welcome reprieve for would-be first home buyers that have been pushed out of the property market that has skyrocketed for the last two years,” Ms Tindall said.

Claire McGarvey with son Archie, 2, from Morphettville, at Angus Neill Reserve in Seacliff. Picture: Tom Huntley

Real Estate Institute SA interim chief executive officer Cain Cooke said there was still much optimism in the market following “significant growth”.

“Houses are still very affordable by Australian standards and there are still plenty of opportunities for people,” he said.

“For anyone who has a large mortgage and other areas of life to service, it’s certainly going to have an impact on their expendable cash.”

It comes as South Australia again recorded the highest unemployment rate in the country for the third consecutive month.

Data released by the Australian Bureau of Statistics on Thursday revealed the seasonally adjusted unemployment rate had dropped by 0.1 per cent to 4.9 per cent.

It was still the highest figure recorded across all states.

South Australia also recorded the highest underemployment rate at 7.7 per cent.

In the state’s most marginal federal seat of Boothby, Morphettville’s Claire McGarvey, 36, said her family would need to re-prioritise its budget if rates rose as predicted.

The part-time teacher said the increase would mean cutting out some of life’s luxuries – and could stop the family buying a larger home.

“I feel for the people who are worse off than us – we will be OK,” Ms McGarvey said.