‘Draining your savings’: Aussie couple reveal $500-a-month interest rate rise pain

A young couple who bought into the Australian dream are now hundreds of dollars worse off a month. And had to make some big changes.

When Danial Khan and his wife Noor bought their first home 18 months ago, it was a no-brainer.

The young couple, who purchased in Glenhaven in Sydney’s Hills District, had long dreamt of the freedom and lifestyle promised by home ownership, and they secured a 100 per cent variable rate with banking giant ANZ.

But after being slugged with five consecutive interest rate rises since May, the pair’s repayments have already gone up by a staggering $500 per month.

And it’s a number that’s only going to keep rising, with some economists expecting the official cash rate to hit 3.6 per cent in late 2023.

Luckily, the couple had expected rates to rise and had budgeted for them, and they are now doing their best not to live above their means and rechecking all their finances to see if they can make savings in a worst-case scenario.

But Mr Khan, 23, told news.com.au he hadn’t expected the RBA to hike rates as aggressively as they had so far.

“It was something we expected would happen at some stage … so we went into it knowing that something like that would maybe happen,” he explained.

“I knew it would happen when it did, but I didn’t expect it to be as high as it is.

“The amount per month has gone up by around $500 from when we first bought to now, and it will get worse (with future rate rises).”

Danial and Noor Khan, both 23, have had their mortgage payments go up by $500 per month. Picture: Supplied

Mr Khan, who works in visual effects and animation, said buying was the right decision for him and his wife, but said he knew of many people who currently owned their own homes who may not have the “luxury and privilege” to be able to keep them and maintain their lifestyles if interest rates kept rising as predicted.

And he said his household had already made some changes in response to the RBA’s ongoing moves.

“Since rates started rising we did an overview of our expenses – beforehand, we did have a vague budget, but we were not that attentive,” he said.

“Since it started happening we’ve been more cautious about everything and we reviewed our spending. We were surprised to find how many things we’d forgotten to unsubscribe from – all these streaming services offer free trials and they bank on the fact you won’t unsubscribe and will keep paying for them.

“We’ve also cut back on everything we don’t need, which I think has helped.”

But Mr Khan said the couple didn’t want to compromise their lifestyles too significantly, as that would defeat the purpose of buying a home.

“It is on the back of my mind – I wouldn’t say I’m exactly nervous per se, because we are prepared and we won’t lose everything, but what worries me is, will rate rises make us change our lifestyles in a day-to-day sense?

“Owning a home comes at a price and it is a bit more expensive but we were happy to do it because we like living where we live and the freedom it brings.

Aussies are bracing for the fifth rate hike in a row.

“But if that slowly starts being taken away, it makes you reconsider whether it is worth it if you buy a house and it just ends up draining your savings.”

Another blow for homeowners

Mr Khan’s comments came as the Reserve Bank of Australia this afternoon raised the official cash rate by yet another 0.5 per cent in a bid to beat soaring inflation.

The Commonwealth Bank of Australia, ANZ, NAB and Westpac had all predicted the 50 basis point hike, which brings the official interest rate to 2.35 per cent, the highest level since December 2014.

According to Rate City, the average owner-occupier will see their monthly repayments rise by $144 in September if their lender passes on today’s 0.50 percentage point hike in full.

If you combine the 2.25 percentage points of hikes since May, that’s an extra $614 a month for the average borrower who had a $500,000, 25-year loan before the hikes began.

It’s a heavy blow to mortgage holders on a variable interest rate, with monthly repayments up by almost one third in only five months.

RateCity.com.au research director Sally Tindall said the latest hike was going to pile “even more pressure on households” that are already struggling with the rising cost of living.

“The average variable borrower will soon be on a rate of over 5 per cent – that’s getting close to double what it was five months ago,” she said.

“If you’re an owner-occupier and your rate starts with a ‘5’ or even worse, a ‘6’, then do something about it. Haggle with your bank for a better deal or refinance to a lender willing to charge you less.

“We expect at least a dozen lenders will still be offering variable rates under 4 per cent once this hike filters through, but only for new customers.”

However, the majority of experts in this month’s Finder RBA Cash Rate Survey expect the RBA to hold the cash rate next month in October.

RBA governor Philip Lowe. Picture: Britta Campion/The Australian

Graham Cooke, head of consumer research at Finder, said the combined cash rate hikes will cost the average Aussie homeowner an additional $801 per month compared to what they were paying in April.

“This fifth rate rise since May piles on the pressure for Aussie homeowners, who will have almost $10,000 less to spend on groceries, clothing and holidays compared to only six months ago.”

Mr Cooke said borrowers who took out fixed rate home loans before the rate rises started won’t notice a difference straight away.

“Fixed loan holders are in for a big shock once that rate expires and their payments spike,” he continued.

“Our figures show the average fixed-rate homeowner will be paying $600 extra per month come December.

“If you’re on a fixed rate, check now to see how much your repayments are likely to jump.”