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Finder’s RBA survey: Cash rate rise to cost the average homeowner $7,300 a year

Posted: 2 August 2022 3:31 pm
News
Cash rate rise_GettyImages_1800x1000

Homeowners on a variable mortgage rate have been dealt another blow and can expect to pay thousands more per year in interest, according to Finder.

In this month's Finder RBA Cash Rate Survey™, 27 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy.

All panellists (100%, 27/27) predicted a cash rate rise in August, with the majority who weighed in* (88%, 23/26) correctly predicting the increase of 50 basis points from 1.35% to 1.85%.

Graham Cooke, head of consumer research at Finder, said the combined cash rate hikes will cost the average Aussie homeowner an additional $610 per month compared to what they were paying in April.

"Rising interest rates, soaring inflation, energy prices and the general cost of living are already squeezing household budgets.

"This latest hike could cost the average mortgage holder a whopping $7,300 extra per year compared to what they were paying in April.

"With almost a quarter of Australian homeowners already struggling to pay their mortgage in July, this news will be especially painful," Cooke said.

Cash rateAverage home loan rate*Average monthly repaymentAverage monthly increaseAverage annual repaymentAverage annual increase
Apr-220.10%3.45%$2,727$32,728
July 2022 1.35%4.65%$3,151$424$37,816$5,088
Aug-221.85%5.15%$3,337$610$40,045$7,317
(current rate as of 2 August)
2.50%2.50%5.85%$3,605$878$43,266$10,538
(predicted peak)
Source: Finder, RBA. *Owner-occupier variable discounted rate. Repayments based on the average loan of $611,158 (ABS data analysed by Finder).

Refinancing to shield the blow

Almost 1 in 5 Australian mortgage holders (18%) have refinanced their home loan in the past 6 months, according to a Finder survey of homeowners in July 2022.

The same proportion (18%) say they plan to do so in the coming 6 months.

Cooke said while most borrowers were facing higher rates, it doesn't mean you can't find a better deal.

"Loyalty is invaluable when it comes to relationships, but it can really cost you when it comes to your home loan.

"If you haven't checked the best offers on the market in the last year, odds are you could be paying too much.

"And if you are on a fixed loan, the variable rate you will land on is about to get a little uglier – be ready to pounce the moment you can switch," Cooke said.

Household spending will be cut

Household spending in May increased 7.9% compared to 2021.

Despite this, 3 in 4 experts (74%, 14/19) believe the recent cash rate hikes will be enough to rein in household spending and reduce inflation.

Leanne Pilkington of Laing+Simmons said the measures were already impacting sentiment.

"[Rate hikes] are dampening the property market, and it's reasonable to believe increased mortgage repayments for a large number of Australians will affect spending over time, with a reduction in spending already being seen," Pilkington said.

Malcolm Wood of Ord Minnett noted, "Rate rises will absorb the elevated saving rate, reverse the wealth effect (lower home prices) and cap the amount of excess saving spent."

The amount the average Australian has stashed in savings is creeping up, according to Finder's Consumer Sentiment tracker.

In June and July, the average Aussie had $36,446 tucked away. That's compared to $25,381 in January and February this year.

Retirees should put more into their super

AustralianSuper recently announced a negative annual return for the first time since the Global Financial Crisis, while the ASX 200 has fallen by more than 10% since the start of the year.

In light of this, almost 3 in 4 experts (73%, 11/15) still say Australians planning on moving into retirement over the next 12 months should put more money into their super accounts if they're able to.

1 in 10 Australians with super (9%) don't know the name of their fund provider – equivalent to approximately 1.5 million people – according to a nationally representative Finder survey.

In addition, 11% of super customers admit they have never checked the performance of their fund.

Cooke said with Australians battling rising interest rates and inflation, it's understandable superannuation isn't front of mind.

"That said, your super is essentially your ticket to retirement, so it's worrying to see so many people not thinking about their financial future.

"Time is money's best friend. The earlier you can get yourself organised – choosing a high-performing fund, making extra contributions early on in your career and consolidating your funds if you have more than one – the better," Cooke said.

Do you know the name of your super fund?YesNo
Baby boomers95%5%
Gen X95%5%
Gen Y88%12%
Gen Z84%16%
Source: Finder nationally representative survey of 722 Australians with super, June 2022

*Experts are not required to answer every question in the survey

Finder would like to take a moment to acknowledge the passing of Dr Clement "Clem" Tisdell. Clem was an Australian economist and Emeritus Professor at the University of Queensland and an original contributor to the Finder RBA Cash Rate Survey since its inception. Rest in peace, Clem.

Here's what our experts had to say:

Anthony Waldron, Mortgage Choice CEO (Increase): "I expect the Reserve Bank to raise the cash rate once again in August as it continues to battle rising inflation. At recent speaking engagements both Governor Lowe and Deputy Governor Bullock have made it clear that further increases to the cash rate should be expected. Mortgage Choice loan submission data shows that borrower preferences are aligned to the rising interest rate environment, with the overwhelming proportion of borrowers choosing a variable rate home loan over a fixed rate in June (93%). The same data shows that refinancing activity has been steadily increasing since April."

Tim Reardon, Housing Industry Association (Increase): "The RBA will pause after an increase in August to observe the outcome. The increases in rates will take 12 to 18 months to impact inflation and unemployment. If combined with tighter fiscal policy settings, this could be sufficient to bring this inflationary cycle to an end."

David Robertson, Bendigo Bank (Increase): "The RBA are now very focussed on returning quickly to a 'neutral' official cash rate and have estimated that neutral is around 2.5% to 3%. Depending on further inflation and jobs data, the cash rate should approach this level steadily by year-end."

Brodie Haupt, WLTH (Increase): "The Reserve Bank will continue to increase the cash rate until the inflation begins to abate."

Mathew Tiller, LJ Hooker (Increase): "With the unemployment rate at a 50-year low and ongoing strong inflationary pressures, the RBA will continue to lift the official cash rate until such time as they feel they have inflation under control."

Malcolm Wood, Ord Minnett (Increase): "The RBA should pause after such a rapid tightening cycle in 4 months to see the impact on the consumer and given global uncertainty."

Stephen Halmarick, Commonwealth Bank (Increase): "Tight labour market and rising inflation."

Saul Eslake, Corinna Economic Advisory Pty Ltd (Increase): "I infer from Governor Lowe's recent comments that the RBA intends to lift its cash rate to somewhere around its estimates of 'neutral' by the end of this year – and for my own part, I think it needs to do at least that."

Noel Whittaker, QUT (Increase): "The RBA has almost promised an increase."

Sarah Hunter, KPMG (Increase): "The data has continued to indicate that momentum in the economy was strong through Q2, with the labour market tightening further and anecdotal evidence continuing to emerge of strengthening wages growth. Against this backdrop, both Governor Lowe and Deputy Governor Bullock have signalled in recent speeches that they expect the Board to continue raising the cash rate to a significantly higher level than it is at the moment. With the data continuing to surprise on the upside, a 50bps increase is more likely than the 'standard' 25bps."

Nicholas Gruen, DYSCALL PTY. LIMITED (Increase): "We are in uncharted waters, not improved by those making the decisions seeking to reassure us that they know what they're doing. They don't and no one does. But then we've always been comfortable with experts' overconfidence. As Daniel Kahneman says, 'we encourage it'."

Leanne Pilkington, Laing+Simmons (Increase): "The expectation is that rates could be around the 3% mark by year's end. The market is looking for some degree of certainty in this area and this includes property buyers and sellers who typically become more active in spring."

Rich Harvey, Propertybuyer (Increase): "The RBA has indicated it is seeking to normalise interest rates as quickly as possible with several short sharp moves upwards to counteract steeply rising inflation. However, it may need to take a breath and pause more rapid rates until it gets an indication of how quickly this is slowing the economy."

Tim Nelson, Griffith University (Increase): "RBA has indicated it will continue to increase rates to reduce inflationary pressure."

Shane Oliver, AMP (Increase): "Unemployment at 3.5% is well below the full employment level of unemployment, inflation is still rising and the RBA needs to cool demand and keep inflation expectations down so another rate hike is certain."

Sean Langcake, BIS Oxford Economics (Increase): "RBA communications this week have emphasised their commitment to tackling inflation. Moreover, they have expressed the view that households are relatively well-placed to bear the burden of higher interest rates. Taken together, we see more rate hikes before the RBA pause to assess how the economy is responding to higher rates."

Mark Crosby, Monash University (Increase): "The RBA is well behind where rates should be. After 2 more 50bp moves, it will be time for a pause to wait for the impacts of recent rises."

Geoffrey Kingston, Macquarie University (Increase): "Catch up with elevated inflation."

Nicholas Frappell, ABC Bullion (Increase): "The RBA state that the cash rate remains very low for an economy with 'a tight labour market facing a period of high inflation'. The RBA will seek to keep inflation expectations anchored via higher rates."

Peter Boehm, Pathfinder Consulting (Increase): "The RBA has already signalled its intent and will undoubtedly follow the lead of other central banks which have increased their interest rates, in some cases by material amounts. I believe we could be looking at a cash rate of around 2.5% by the end of the calendar year. This means there will need to be some big increases between now and then and this raises in my mind, the possibility of recession. Interest rate increases are unlikely to address the causes of inflation which are largely attributable to events occurring overseas and which are being imported into the Australian economy. Personal budgets are under severe pressure right now and I can see a scenario where RBA action could break them. Further, wage increases across the broader economy will not help – they will add to inflationary pressures which may result in business downsizing or exiting the market. It is a vicious circle. The light at the end of the tunnel? The likely economic contraction resulting from significant rate increases may see the RBA actually reduce rates next year to help reinvigorate the economy. In the meantime, though, it's a tough road ahead for most Australians, especially those with a mortgage."

Jason Azzopardi, Resimac (Increase): "Inflationary and wage pressures continue."

Mark Brimble, Griffith University (Increase): "Pressure is building for short-term inflation and the RBA, given criticism, will want to try to get ahead to this and dampen demand. I think it will be .50 or .65."

Dale Gillham, Wealth Within (Increase): "The RBA seem to be hell-bent on pushing the interest rates up to what they consider to be normal levels as fast as they can. They seem to want to incrementally raise them until they get to where they want them, rather than wait to see if recent rises slow inflation down."

Jakob B Madsen, University of Western Australia (Increase): "To combat the high inflation."

Cameron Murray, Henry Halloran Trust, The University of Sydney (Increase): "Inflation seems to be still a problem, and unemployment is extremely low. This should be sufficient for the Bank to continue its tightening path."

Michael Yardney, Metropole Property Strategists (Increase): "Unemployment has now fallen to a 48-year low of 3.5% and while many see this as a good thing, the stunning June jobs data all but guarantees the Reserve Bank of Australia will lift the official interest rate by at least 0.5 percentage point again in August, and possibly even by 0.75 percentage points."

Cameron Kusher, REA Group (Increase): "We get the latest CPI release later this month and the expectations are that CPI will rise further, necessitating a further increase to the cash rate."

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