Interest rate crunch time for borrowers as repayments blow out

Mortgage repayments for an average $750,000 loan are set to blow past the $5,200 a month mark by May, setting up many overstretched borrowers for a financial fall.

Mortgage repayments for an average $750,000 loan are set to blow past the $5,200 a month mark by May, setting up crunch time for many borrowers who’ve overstretched their finances.

RateCity research director Sally Tindall warned despite latest inflation data dropping to 7.4 per cent on Wednesday, the Reserve Bank was unlikely to change its course on rate rises, with three more expected by May, including 0.25 bps this Tuesday.

“We are staring down the barrel of the tenth rate hike in as many RBA meetings and for some borrowers who perhaps overstretched the budget to get into an overheated property market a year or two ago, this could be crunch time,” Ms Tindall said.

“We are looking at multiple hikes still across potentially the next three months.”

RateCity Research Director Sally Tindall. Picture: Tim Hunter.

Costs are escalating so fast that an owner-occupier who takes out a loan today for a median-priced home in Brisbane ($716,000) would have to add a further $270 to their $3,156 repayment level by May, according to RateCity calculations which started with the RBA average new owner-occupier variable rate of 4.98 per cent.

Ms Tindall said someone with a $750,000 loan a year ago had about $340 more in repayment costs coming in the next three months – a rise of $1,702 from April 2022 to May 2023 – bringing their monthly repayment to $5,204 in less than three months’ time.

Someone with a $500,000 loan a year ago would be facing a 49 per cent rise in their mortgage repayment costs between May last year and May this year – a $1,135 jump to $3,409 monthly.

Those RateCity calculations were based on an owner-occupier paying principal and interest with 25 years remaining, using the RBA average existing owner-occupier variable rate of 2.86 per cent in April 2022 and NAB’s cash rate forecasts.

Some people are scrimping and scraping for every single dollar.

“There are some people scrimping and scraping for every single dollar while others still have sizeable buffers to fall back on.”

“Some people through Covid faced the toughest financial test of their lives. They might have had to make tough decisions about their small business, many ended up having to shut their doors, they might have had a bout of ill health that meant they were strapped for cash financially.

“But those people who came through Covid relatively unscathed, benefiting from working from home, from not going on expensive overseas holidays, squirrelled some of that money away into their home loans ready for a rainy day. Well, it is now raining.”

Ms Tindall said the number of hikes in as many meetings was unprecedented.

“The RBA has made it crystal clear that they’re prepared to keep lifting the cash rate in order to bring down inflation and that they’ll do what it takes in order to achieve that job.”