Australian borrowers face falling off a “mortgage cliff” as their fixed rates expire and the Reserve Bank of Australia’s repeated hikes to the cash rate set in.
Analysis by finance comparison website Canstar shows fixed rate borrowers could see their monthly repayments rise by up to 63 per cent overnight.
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The official interest rate has risen from the pandemic-low of 0.1 per cent to 4.10 per cent since last May.
The Reserve Bank estimates half of all fixed rate loans that enjoyed that 4 per cent buffer will expire this year.
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Canstar found borrowers whose $500,000 loan was fixed for two years in 2021 would see repayments rise by $1200, or 63 per cent, to $3101 per month.
Someone on a three-year fixed rate, taken out in 2020, will soon face a 53 per cent increase in repayments from $2004 to $3074.
“Fixed rate borrowers of two or three years ago are facing an unprecedented hit to their finances with their interest rate possibly trebling overnight when the fixed period comes to an end and they fall off the mortgage cliff,” Canstar’s financial expert Steve Mickenbecker said.
“Fixed rate borrowers have not had the past year to acclimatise to higher interest rates. They have avoided the pain of adjusting their budget for higher loan repayments but will be on the receiving end of the Reserve Bank’s 12 cash increases over the past year all in one huge hit.
“To help cope with the inevitable higher repayments, any borrower with a fixed period still to run should be making the necessary adjustments now and be putting themselves ahead with extra repayments.
“The position of borrowers will deteriorate even further if the Reserve Bank continues to lift the cash rate over coming months, as expected by a couple of the major banks.”
The Reserve Bank of Australia may hold off on another rate hike in July. File image.
Credit: AAP
There is a glimmer of hope the RBA could hold off a hike in July, with inflation moderating in the latest ABS figures.
Inflation fell to 5.6 per cent in the 12 months to May, down from 6.8 per cent in April.
The RBA sets a goal of bringing inflation down to between 2 per cent and 3 per cent when considering whether to hike rates.
“The latest inflation numbers are encouraging and probably enough to stay the Reserve Bank’s hand from another cash rate rise in July,” Mickenbecker said.
“If the more robust quarterly inflation data released in July doesn’t confirm the trend towards the Reserve Bank’s 2 per cent to 3 per cent inflation target, we can expect further rate hikes.
“The labour market is very tight with the lowest unemployment rate in decades, and this will feed wage pressure into the inflation rate. It doesn’t look as if the Reserve Bank’s job is done yet.”