RBA interest rate hike to ensure mortgage repayments 25% of pay

New modelling shows today’s rate hike will push Aussie repayment burden to its heaviest in history, while house prices are tipped to slide.

New modelling shows today’s interest rate rise will push the mortgage repayment burden of Australians to its heaviest in history — as house prices are tipped to slide into ‘reverse’ in the next six months.

Australia’s central bank has just delivered another blow to borrowers across the country as it hiked interest rates yet again.

On Tuesday afternoon, the Reserve Bank of Australia (RBA) increased the cash rate by 25 basis points, bringing it to 4.10 per cent.

Modelling by the ANU’s Centre for Social Research and Methods shows homeowners will, on average, now stump up a quarter of their take-home pay towards their repayments - meaning they will be now be paying 50 per cent more than before the pandemic.

ANU associate professor Ben Phillips told news.com.au that while mortgage holders are coming off “a few years of very low interest rates, mortgage costs as a share of income are at their highest since 1984”.

Reserve Bank governor Phil Lowe. Picture: Britta Campion / The Australian

“There has been a very sharp increase in the last two years, obviously related to sharp increases in interest rates, but also higher average debt levels,” he said.

The modelling is based on a “conservative estimate” that this is the only increase to the cash rate by the RBA this year.

Rising house prices could reverse

The modelling comes as predictions the dramatic increase in house prices is also set to wane.

TCorp chief economist Brian Redican told the Financial Review that unless interest rates start falling, property prices could reverse in the next six months.

“We haven’t really seen an improvement on those hard-edge fundamentals that support a rebound in house prices this year,” he said.

“Wages growth hasn’t picked up materially. In fact, real wages are still falling because they’re not matching the inflation, in terms of the ability to take out a large mortgage.

“We’re still seeing the flow-on impacts of the Reserve Bank’s rate hikes. The rate increases, including as recently as May, are still running through the system. So people will be facing higher mortgage rates over the next couple of months, including those who are coming off their fixed rate loans.”

His warning comes despite the fact the rebound in housing prices has been accelerating in recent months.

Predictions are split over whether the RBA will make it a 12th interest rate hike in 13 months today. Picture: NCA Newswire / Gaye Gerard

National home prices have increased 0.33 per cent in May, bringing the 2023 rise to 1.55 per cent according to PropTrack’s latest house price index.

Every capital city except Darwin recorded an increase and prices in all regional markets rose too except for regional NSW and regional Victoria.

Mr Redican said the property market is “very much driven by sentiment at the moment” and the belief that the RBA is “near the end of its rate hiking process and a rate cut is imminent”.

“Potential sellers aren’t selling because they think prices are too low, so they’re prepared to wait out for prices to rebound,” he said.

“But the thing about those kinds of sentiment indicators or animal spirits is that they can turn quite quickly, particularly when we look ahead at those affordability issues, which are likely to get worse rather than better.”

-with Eli Green, NCA NewsWire