Mortgage repayments to soar as rates rise

Australian homeowners could be paying an additional $450 each month on their mortgages by the end of the year, with most of the major banks now expecting the Reserve Bank to make its first move as early as next week.

Mortgage rates could rise by $450 should interest rates increase by a percentage point.

Australian homeowners could be paying an additional $450 each month on their mortgages by the end of the year, with most of the major banks now expecting the Reserve Bank to make its first move as early as this week.

Initially, borrowers were told an official increase by RBA from the current record lows was unlikely until 2024, although variable and fixed mortgage rates have inched higher over the past year. But last week’s strong inflation figures, which showed a 5.1 per cent annual rise to March, have changed the outlook of many economists.

Westpac, NAB and ANZ are each anticipating an increase of 15 basis points to lift the current cash rate target from 0.10 per cent to 0.25 per cent. All expect a supplementary rise in June of 25 basis points.

CBA believes the decision on rates may hold until after the election. It also noted that holding off until June would likely cause the central bank to increase the cash rate 40 basis points, which would be the largest single movement by the RBA since February 2000.

PropTrack analysis shows a borrower who purchased a home at the median house price in Sydney ($1.06m) with a 20 per cent deposit on the average variable rate of 2.43 per cent could expect to pay an additional $450 each month should mortgage rates increase by 1 per cent, which would rise to $940 each month on a gain of 2 per cent. Melbourne and Canberra were on par given that their respective medians sit around $800,000. A 1 per cent gain would see mortgage holders pay an additional $340 per month, while a 2 per cent increase would come out at $710.

PropTrack economist Angus Moore expects rates to move higher at a slower pace given the market uncertainty.

“Market pricing certainly implies a very steep increase in interest rates and many market participants expect that,” Mr Moore said. “My view is we’ll probably see the Reserve Bank move a bit more slowly … in part, because it’s been so long since interest rates have gone up.”

Westpac chief economist Bill Evans expects the cash rate to hit 1.25 per cent by year’s end.

Cheap credit was a major catalyst of the recent housing boom which saw property prices climb more than 20 per cent across the country. Recent CBA analysis suggests that more than a million borrowers have not experienced a rate rise.