What 1.75 per cent cash rate would mean for Melbourne, Victorian mortgage holders
Monthly repayments on a median-priced house in a raft of suburbs will be $1000s more than the last time the cash rate was what it’s expected to reach this year. SEARCH YOUR SUBURB.
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Mortgage repayments on the average Melbourne house will be almost $900 more a month than the last time the cash rate was what it’s expected to reach this year.
And monthly repayments on a median-priced house in a raft of suburbs will be $1000s more than in 2016 if the cash rate hits the 1.75 per cent it was then.
House prices and cost of living have since soared, but record-low interest rates have kept the current average repayment on the median Melbourne house to only $170 more than 2016.
That would surge to $880 more under a 1.75 per cent cash rate, which many economists are expecting by Christmas, as the market factors in a steep increase to 2.5 per cent.
RELATED: Victorians brace for interest rate rises: Search every suburb
Every Victorian suburb’s pandemic house price gains
Property price growth by federal electorate
PropTrack data provided exclusively to News Corp shows how much more mortgage-holders on median-priced homes in every Victorian suburb could be forking out at the close of 2022.
Buyers that bought into some of the hottest markets during the pandemic, such as along the Mornington Peninsula and Surf Coast, are now some of the most exposed to rate rises after huge price surges over the past couple of years.
But PropTrack economist Angus Moore said those who bought into these areas were likely financially better placed to weather the storm.
“The areas where we’re going to see more pressure from rising mortgage rates and inflation are those where households tend to have smaller liquidity buffers and may not have seen wage rises commensurate with inflation, typically lower and middle income households,’ he said.
The Reserve Bank of Australia (RBA) is tipped to lift the cash rate to 0.75 per cent on June 7 after a 0.25 per cent rise in May — and as high as 1.75 per cent by December.
The market is factoring in 2.5 per cent by Christmas but RateCity.com.au states technical assumptions in the most recent RBA board minutes show the cash rate could increase to 1.75 per cent by the end of the year, and hit 2.5 per cent by the end of 2023.
Economists are predicting this could include a 0.4 per cent hike next month.
If that happens, the average variable owner-occupier with a $500,000, 25-year principal and interest loan could have their monthly repayment immediately rise by another $106, according to RateCity.com.au analysis.
It comes amid huge cost of living pressures, including petrol at $2 a litre, amid an inflation surge and stalled wages that are going backwards in real terms.
Annual wage growth was 2.4 per cent and annual inflation 5.1 per cent in March, according to latest Australian Bureau of Statistics figures.
Meanwhile, childcare is up 18.5 per cent on 2016, automotive fuel 64 per cent, food and non-alcoholic beverages 13.5 per cent, bread 9.5 per cent and milk 15.4 per cent, Finder notes.
In the March quarter 2016, inflation was 1.3 per cent and the median weekly Aussie household income was $1727, according to the Australian Bureau of Statistics.
Six years on, the median weekly household income is $1786.
PropTrack economist Angus Moore said record-low interest rates had offset the affect of property price rises on mortgage repayments in recent years.
“Prices were basically flat in Melbourne in April and given we’ve seen prices basically flat already and interest rates are rising faster than expected, we’ll probably see prices flat or decline over the next few months,” Mr Moore said.
“Looking later in the year, a lot really depends on the balance of how quickly the RBA raises interest rates to tame inflation and whether wages growth picks up to offset that.”
RateCity.com.au research director Sally Tindall said the average borrower was “potentially staring down the barrel of a $651 hike” to monthly repayments by the end of next year.
“That’s like buying a new dishwasher every single month,” she said.
“Sit down and work out what your repayments will look like, even if your rate rose by 3 per cent. If you don’t think you’ll be able to make these higher repayments, take action now.
“The longer you wait to make changes, the bigger the bind you’ll find yourself in.
Finder money expert Rebecca Pike said the number of Australians struggling to meet their living costs was rising and reached a record high in April in its Consumer Sentiment Tracker.
“People may feel like they’re being hit from all angles, so it’s more important than ever to be prepared with your finances,” Ms Pike said.
“If you’re struggling to save money or keep up with your monthly outgoings, it’s critical to know what’s going in and out of your account in the first place so then you can budget accordingly.”
She suggested shopping around for a better deal on regular expenses, which “can save you hundreds if not thousands of dollars”, and using money management apps.
NEW CHALLENGES
Jason Ng and wife Esther are currently renting in Doncaster East while they await settlement on their recent home purchase.
After welcoming their first child, Hayden, eight months ago, they are feeling cost of living pressures more than ever.
“It’s been quite difficult to maintain a sizeable deposit for our purchase and we are a bit worried about what this means for when the house settles,” Mr Ng said.
“If interest rates keep going up, our repayments will go up and so will food and petrol prices.”
Mr Ng said they have also had to modify their expectations of what they can afford to renovate in their new home.
“We’ve put together a ‘must-do’ list just to make the place liveable, but anything that’s not pressing we’ve had to put on the backburner,” he said.
The Ngs have also cracked down on budgeting as it became “more complex” with the baby.
“We have to account for costs of things like childcare and nappies … our budget plan has gone from weekly or monthly to now looking at 12 months ahead,” Mr Ng said.
COMBAT THE RATE HIKES IN THREE STEPS
— Cut back on expenses, particularly regular ones. Switch to a cheaper energy provider, rotate entertainment subscriptions, make more packed lunches and cut back on takeaways.
— Switch to a lower rate loan. Four lenders are still offering variable rates under 2 per cent post the RBA May hike.
— Ask your boss for a pay rise. The average wage is set to rise. Make sure your wage does too.
MELBOURNE AND REGIONAL VICTORIA
City/region, Median sale price (12 months to end July 2016), Mortgage repayments in July 2016 (monthly), Median sale price (12 months to end April 2022), Current mortgage repayments, Mortgage repayments if interest rates increase 1.75 (monthly)
OVERALL
Melbourne, $570,000, $2,600, $800,000, $2,560, $3,180
Regional Victoria, $320,000, $1,430, $530,000, $1,700, $2,120|
HOUSE
Melbourne, $600,000, $2,730, $900,000, $2,900, $3,610
Regional Victoria, $320,000, $1,480, $560,000, $1,790, $2,220
Melbourne, $520,000, $2,390, $620,000, $2,000, $2,490
Regional Victoria, $260,000, $1,200, $390,000, $1,250, $1,550
SUBURB LEVEL (VICTORIA) BIGGEST INCREASES
Suburb, City/region, Median sale price (12 months to end July 2016), Mortgage repayments in July 2016 (monthly), Median sale price (12 months to end April 2022), Current mortgage repayments, Mortgage repayments if interest rates increase 1.75 (monthly)
OVERALL
Portsea, Greater Melbourne, $1,700,000,$7,740, $3,760,000, $12,110, $15,050
Sorrento, Greater Melbourne, $950,000, $4,330, $2,340,000, $7,530, $9,350
St Andrews Beach, Greater Melbourne, $630,000, $2,850, $1,830,000, $5,890, $7,320
Fingal, Greater Melbourne, $710,000, $3,230, $1,860,000, $5,980, $7,440
Somers, Greater Melbourne, $750,000, $3,420, $1,750,000, $5,630, $7,000
Blairgowrie, Greater Melbourne, $750,000, $3,420, $1,690,000, $5,440, $6,760
Canterbury, Greater Melbourne, $1,860,000, $8,450, $2,920,000, $9,390, $11,670
Anglesea, Rest of Vic, $660,000, $2,980, $1,550,000, $4,990, $6,210
Barwon Heads, Rest of Vic, $740,000, $3,390, $1,610,000, $5,170, $6,430
Mount Eliza, Greater Melbourne, $850,000, $3,880, $1,700,000, $5,470, $6,800
HOUSE
Portsea, Greater Melbourne, $1,700,000, $7,740, $3,760,000, $12,110, $15,050
Sorrento, Greater Melbourne, $960,000, $4,370, $2,400,000, $7,720, $9,590
St Andrews Beach, Greater Melbourne, $630,000, $2,880, $1,810,000, $5,820, $7,240
Black Rock, Greater Melbourne, $1,460,000, $6,630, $2,610,000, $8,390, $10,430
Somers, Greater Melbourne, $750,000, $3,420, $1,750,000, $5,630, $7,000
Blairgowrie, Greater Melbourne, $750,000, $3,420, $1,700,000, $5,450, $6,780
Barwon Heads, Rest of Vic, $780,000, $3,560, $1,720,000, $5,550, $6,900
Anglesea, Rest of Vic, $680,000, $3,110, $1,600,000, $5,150, $6,400
Malvern, Greater Melbourne, $1,980,000, $9,040, $3,050,000, $9,810, $12,190
Mount Eliza, Greater Melbourne, $880,000, $4,010, $1,760,000, $5,660, $7,040
UNIT
Torquay, Rest of Vic, $460,000, $2,110, $900,000, $2,900, $3,610
Dromana, Greater Melbourne, $420,000, $1,900, $790,000, $2,530, $3,140
Safety Beach, Greater Melbourne, $440,000, $2,000, $810,000, $2,610, $3,240
Frankston South, Greater Melbourne, $440,000, $2,010, $800,000, $2,570, $3,190
Ocean Grove, Rest of Vic, $500,000, $2,280, $860,000, $2,770, $3,440
Black Rock, Greater Melbourne, $810,000, $3,690, $1,210,000, $3,890, $4,840
Rosebud, Greater Melbourne, $380,000, $1,730, $720,000, $2,300, $2,860
Belmont, Rest of Vic, $290,000, $1,320, $580,000, $1,860, $2,310
Edithvale, Greater Melbourne, $510,000, $2,320, $830,000, $2,660, $3,310
Mont Albert North, Greater Melbourne, $930,000, $4,250, $1,300,000, $4,180, $5,200
** The top 10s are ranked by biggest $ increase in repayments between 2016 and today.
2016 mortgage payments use the average mortgage rate on new mortgages as it was then (based on RBA data).
Current mortgage payments are based on average rate on new mortgages for past year – and the +1.75 column is just that mortgage rate +1.75.
Prices are for a typical purchaser in that 12 month period
SOURCE: PROPTRACK
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