Hundreds of thousands of Australians face soaring mortgage repayments when fixed-rates end this year

Almost one million Australians are facing a huge increase in their mortgages this year, with experts fearing what it means for the economy.

Hundreds of thousands of homeowners on low fixed-rate mortgages that end in the coming year could be hit with as much as $16,500 more a year in interest repayments.

There are fears that, along with further interest rate rises from the Reserve Bank (RBA), it could leave a $20 billion hole in the economy, according to analysis by KPMG seen by the Sydney Morning Herald.

More than 800,000 record-low fix-rate mortgages that were taken out during the Covid pandemic are set to end this year, and when they reset, the homeowners behind them will face much larger interest repayments.

Hundreds of thousands of homeowners face soaring mortgage repayments this year. Picture: Istock

KPMG Australia chief economist Brendan Rynne told the Sydney Morning Herald that, with the average mortgage now $600,000, homeowners with a fixed-rate could expect a $16,500 after-tax increase in interest payments over 12 months once their current low rate ends.

The RBA hiked interest rates to a 10-year high of 3.35 per cent last week, and the cash rate is expected to peak at 4.1 per cent later this year - with three more 0.25 per cent rate rises forecast.

Mr Rynne believes such a move could lead to households spending $20 billion less this year as people make cutbacks to pay their home loans, leading the economy to stutter.

“It would not be unreasonable to expect household consumption expenditure to be around $20 billion lower over this year as a direct consequence of the monetary policy tightening, with 1 per cent being shaved off GDP,” he said.

“It would seem the RBA’s forecasts are optimistic and once the effects of higher interest rates flowing through to higher rents and the full impacts of real wage losses are factored in, then the slowdown in economic activity over the coming year is likely to be even more acute than even these updated forecasts by the RBA suggest.”

Some experts believe this could lead Australia into recession.

Philip Lowe, governor of the Reserve Bank of Australia. Photographer: Brendon Thorne/Bloomberg via Getty Images

Treasurer Jim Chalmers himself last week warned that world’s economy was in for a “difficult year”.

Speaking to ABC Radio, the Treasurer said Australia’s ability to weather the storm would depend on how well it could withstand global economic pressures, as well as local interest rate rises and natural disasters.

RBA governor Philip Lowe’s future in the job hangs in the balance after nine consecutive interest rate hikes since last May.

He will face a barrage of questions this week as parliamentarians turn up the heat on the under siege governor.

Dr Lowe is listed to appear before a senate estimates hearing on Wednesday, followed by a House committee on Friday.

He expected to be probed over the central bank’s plans to deliver further interest rate rises and the impact of nine consecutive hikes since May.

Dr Lowe previously issued an apology in November for suggesting that the central bank’s cash rate would stay at 0.2 per cent until 2024, when instead it started rising in May 2022 and is already at 3.35 and expected to rise further.

Dr Lowe said it was “regrettable” that Australians “listened to what we said”.

NAB economist Taylor Nugent said the bank’s “hawkish” statement of monetary policy, released last week, was sure to be on the agenda.

“With heightened press coverage of Lowe’s recent approach to communication that is sure to be a focus of questioning,” he said.

“Though we will be looking for comments around the RBA is balancing the risks of subpar growth/recession versus getting inflation back to target and what the bar is to pausing the hike cycle.”

When pressed on the ABC Insider’s program on Sunday over whether Dr Lowe was performing his job properly, Mr Chalmers stated he had a difficult role but wouldn’t endorse him.

“He’s got a hard job to do. He’s got to balance getting on top of this inflation challenge without crunching the economy … I’m not going to second guess the Reserve Bank governor,” he said.

“I genuinely respect his independence, as I’ve said probably hundreds of times, in opposition and now in government. I think that’s an important feature of the system.”

Originally published as Hundreds of thousands of Australians face soaring mortgage repayments when fixed-rates end this year