Rate hikes ‘unaffordable’ for one in every three Australians

With the RBA hiking rates, South Aussies are preparing for average mortgage increases of $88 a month. But coupled with other rises, the hip-pocket hit will be far higher for most.

Almost one in three Aussies who are borrowing or renting say they won’t be able to afford housing costs if the Reserve Bank continues to lift interest rates over the coming months.

The central bank Tuesday added another 0.5 percentage points to the target cash rate as it attempts take the sizzle out of an overheated economy and rein in runaway inflation.

It was the second rise in five weeks and – if ANZ economists are correct – just the beginning of a steep ramp to a cash rate of 2.5 per cent by the middle of 2023.

Research by financial comparison site Canstar shows almost one-third of Australian renters and borrowers can’t afford the potential increase in housing costs, and a further 25 per cent are unsure if they will be able to afford the increase.

Such a rise would increase repayments on a 30-year $500,000 loan by almost a third, climbing by $629 to $2780 a month.

Lauren and Christopher Fitridge with baby Grace have recently bought a home and are now gearing up for a hike in mortgage repayments. Picture: Tom Huntley

Canstar finance expert Effie Zahos said the survey gave a “good indication that there is little wriggle room left in household budgets”.

The survey also found 60 per cent of Australians thought their wages wouldn’t go up enough to cover rising housing and living costs.

“It’s not just homeowners doing it tough through higher loan repayments,” Ms Zahos said. “While interest rates don’t have a direct impact on rental values, they do have some indirect consequences, which could see rental prices move even higher.”

Real Estate Institute SA acting chief executive Cain Cooke said a rate rise would not have an immediate affect on house prices.

“While we will see a slowdown in volume of houses being sold, they will still be able to hold the great values that are being achieved for vendors,” he said.

“The rise in interest rates will certainly apply additional pressure, but I think buyers are already anticipating it and planning for it.”

Christopher and Lauren Fitridge, who welcomed baby Grace two weeks ago, have postponed renovations to their Kidman Park home to allow for increased mortgage payments.

“If interest rates keep going up, our repayments will go up and we will have to make cuts elsewhere in the budget, which isn’t ideal,” Mr Fitridge said.

Kirandeep Singh and his wife Suminder Kaur share those concerns.

Working hard over the years to save up for a deposit, the couple moved into their Klemzig home a year ago.

Welcoming their first child ten months ago, they are now feeling the cost of living pressures, especially in the wake of another interest rate hike by the RBA.

Kirandeep Singh and his wife Suminder and baby Gehar (10 months) at home in Klemzig. Picture Matt Turner.

“While one always plans for contingencies, it is unpleasant to shell out more money for an expense you thought had worked out the budget for,” Mr Singh said.

“Given how fuel and food prices have gone up as well, increase in mortgage repayments is going to be tough for everyone. I will have to budget an extra $300 to $400 in my monthly finances,” he said.

“We spend around $250 a week just on fuel expenses. Our weekly grocery bills are anywhere between $150 to $250. With a growing child, you need to save up for future expenses and it’s tough for a young family.”

Originally published as Rate hikes ‘unaffordable’ for one in every three Australians