Commonwealth, ANZ, Westpac, Macquarie Bank to pass on rate rise after RBA decision

Several major banks have responded to the RBA’s 0.5 per cent rate hike, as some economists revise their forecasts and tip another increase in July. Here’s when it will hit your loans.

Recent homebuyers face forking out nearly $5000 more in loan repayments this year, amid growing expectations the Reserve Bank of Australia will follow up its extraordinary 0.5 per cent rate hike with another increase of the same size next month.

In what Treasurer Jim Chalmers described as “very difficult news”, the RBA on Tuesday raised its benchmark cash rate from 0.35 per cent to 0.85 per cent — the biggest jump in close to a generation.

If lenders mirror the RBA’s move, repayments on the average new NSW loan of $786,000 will rise by $211 a month.

Westpac revealed on Tuesday night it would pass on the hike in full to new and existing borrowers on variable rates.

On Wednesday, the Commonwealth Bank and Macquarie Bank announced they would do the same from June 17.

Westpac has become the first of the big four to pass on the interest rate hike. Picture: Kelly Barnes

ANZ has also confirmed it will pass on the rate rise to customers, but is yet to confirm when the change will kick in.

CBA’s retail banking group executive Angus Sullivan said, “we are here to support Australian households who may be concerned about their home loan repayments”.

“We encourage customers to contact us to discuss the options available to them including ensuring offset accounts are set up and linked to their eligible home or investment loan.”

Westpac consumer and business banking boss Chris de Bruin also encouraged customers in financial difficulty to contact the bank.

“Call us as soon as possible,” Mr de Bruin said.

The bank added that it would introduce a term-deposit rate of 2.25 per cent for 12 months; other deposit rates remain under review.

CBA’s head of Australian economics Gareth Aird said the RBA had “radically shifted gear”.

Economic growth would be slower and unemployment would be higher, Mr Aird said.

The fall in house prices would also speed up.

“We now expect a further 50 basis point rate hike in July followed by 25bp hikes in August, September and November that will see the cash rate target at 2.10 per cent by the end of the 2022,” he said.

Prior to Tuesday, CBA’s end of year forecast for the cash rate was 1.35 per cent.

If Mr Aird’s revised predictions come true, instalments on that average new loan could reach $4600 by December, up from $3700 in April.

Repayments for the whole of 2022 would be more than $49,600 compared to less than $44,800 last year, when the cash rate was steady at a record low 0.1 per cent.

On a $500,000 loan, the extra cost this calendar year would be more than $3000 and double that on $1 million.

In a statement explaining the decision to hike by 0.5 per cent for the first time since 2000, RBA Governor Philip Lowe said the central bank’s board was “committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”

The target is 2-3 per cent. The most recently official data had the consumer price index running at 5.1 per cent. Last month the RBA said it was expecting the CPI to hit 6 per cent. It now anticipates the peak will be beyond that.

Governor of the Reserve Bank of Australia Phillip Lowe. Picture: Joel Carrett

“Inflation is likely to be higher than was expected a month ago,” Mr Lowe said.

To force it lower, the RBA will keep on pushing up interest rates, which redirects household income to loan repayments, thereby reducing general spending. It also makes borrowing less attractive.

The goal is to bring demand for goods and services into line with supply, which is running low in a wide range of areas due to Russia’s invasion of Ukraine, lockdowns in China and La Niña.

Mr Lowe said the “board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead.

“The size and timing of future interest rate increases will be guided by the incoming data and the board’s assessment of the outlook for inflation and the labour market,” which he described as “tight”. It was likely that wages growth would lift, Mr Lowe said.

Aussie home owners may pay thousands more on their home loans due to the new rise.. Picture: Nikki Short

The Treasurer, Mr Chalmers, said the RBA’s big hike would be “very difficult news for all of those Australians who are already facing skyrocketing costs of living in this country.”

He said it would “we will also make it more expensive for the Commonwealth government to service that trillion dollars of debt in the budget.”

Opposition treasury spokesman Angus Taylor said $63 billion of spending commitments made by the new Labor government were adding inflationary pressure.

“It adds pressure to inflation and interest rates and that‘s why that spending needs to be looked at very hard,” Mr Taylor said.
Homeowners are worried for the future of their children and neighbourhoods in the wake of yesterday’s historic RBA interest rate increase.

Campbelltown mum of three, Niddal Karaki, said she was saddened to hear the RBA had increased interest rates by 0.5 per cent to 0.85 per cent.

Homeowner Niddal Karaki with her kids Ali Saleh, Fadel Saleh and Monna Saleh. Picture: Richard Dobson

“How much more sacrifice does somebody need to make in order to have basic rights, in order to have a home?” she said.

“That’s almost $50 a week you could almost spend on something different, now you have to put money aside for something that’s already over priced.”

Ms Karaki said she was fortunate to be one of the lucky residents of Bradbury who would not be dramatically impacted by the interest rate hike however feared for her family and community.

“I really feel bad for people with the skyrocketing interest rates and prices” she said.

“I worry also for my children, what are their chances.

“I know families who do struggle and some don’t even have a mortgage at all because they simply won’t be able to.

“It used to be the Australian dream (owning a home) but it’s not now.

“It’s just impossible.”

WHERE MORTGAGE STRESS WILL HIT HARDEST

The latest rise comes as modelling reveals half of all households with a mortgage will be unable to make ends meet by Christmas as a run of interest rate rises plunges an extra 500,000 households into the red.

The Reserve Bank of Australia has lifted its benchmark cash rate by 0.5 per cent following Tuesday’s RBA board meeting.

It’s highly unlikely to be its last hike this year.

Analysts at Macquarie Bank, AMP and Goldman Sachs are among those predicting a 2 per cent cash rate by Christmas.

So too Nomura senior economist Andrew Ticehurst, who said there were signs the economy was “overheating”.

“The RBA is an inflation-targeting central bank and it is seeing more signs that wages are accelerating, which is probably going to make them think that this pick-up in inflation is sustainable – it’s more than just an oil price shock coming from the war in Ukraine,” Mr Ticehurst said.

Leading industry observer, Digital Finance Analytics principal Martin North, told The Daily Telegraph that a 2 per cent cash rate would increase the share of households in mortgage stress from about 44 per cent to almost 50 per cent.

Digital Finance Analytics principal Martin North. Picture: Hollie Adams/The Australian

“We’ve got more than four million households out of nearly 10m who are already close to the edge — that’s an unprecedented situation.

“If we assume the RBA adds 2 per cent, or just about that, another 400,000 to 500,000 would probably fall into that stress category,” Mr North said.

“We’d be knocking on close to half” of all households with a mortgage being in stress, he added.

DFA uses nearly 5000 phone monthly surveys to gauge the financial position of Australian households and has been doing so since 2000.

According to DFA, households are in stress if they are spending more on necessities and loan repayments than they are earning from work, welfare and investments.

Mortgage stress heat map of Sydney. Source: Digital Finance Analytics

Mr North’s data shows the Campbelltown area has more mortgagors already going backwards than anywhere else in the nation.

Over 10,000 households in that area are in stress — about five in every six with a home loan.

The Tapping area of Perth is second by sheer numbers, followed by Berwick in Melbourne then the regional Queensland city of Toowoomba; in percentage terms, areas of Launceston are most stressed.

NSW has the biggest number of households in strife (459,000), but in percentage terms, stress is more common in Tasmania, Victoria and South Australia.

DFA’s Mr North said the moneysmart.gov.au website had excellent tools for helping households work out where their money is going.

“Some people are going to have to decide whether their mobile phone subscription is more important than paying the mortgage,” he said.