RBA hikes rates again as Aussies' financial "misery index" hits highest point since the GFC

The Reserve Bank of Australia (RBA) has hiked the cash rate yet again, with variable rate loans set to get even more expensive for the average borrower. This move is likely to add further to the cost of living pressure currently faced by everyday Aussies, even as inflation eases slightly from its peak in late 2022.   

At its monthly meeting for June, the RBA hiked the cash rate by another 25 basis points to 4.10%, meaning that the average borrower on a $500,000 variable rate home loan might be paying $1,217 more per month than in April 2022.

Even with inflation easing slightly, today’s move shows that the cycle of rate rise pain is not yet over for Aussie home loan borrowers.

It remains to be seen how long the rate rises will continue, but based on the interest rate forecasts of the major banks, we may be nearing the end of the RBA’s rate hikes, but the question of when they’ll be done remains open.

How could this rate rise affect your home loan?

When the RBA hiked the cash rate in May of 2022, banks and lenders raised their own home loan rates in turn, and a little over a year on, with a dozen rate rises behind us, the average mortgage is now significantly more expensive.

With banks and lenders likely to raise rates again after today’s RBA announcement, Canstar Research crunched the numbers to find out how much more the average borrower might expect to repay.

The below calculations show how much more a borrower with a $500,000, $750,000 and $1,000,000 home loan might expect to pay each month, assuming that their mortgage is on an average variable rate and that their lender has passed on each of the earlier cash rate hikes in full (and made no other rate changes).

We also looked at how much more expensive the average variable rate mortgage might be now compared to what it was in April of last year, the last month before the current round of cash rate hikes.

How could this cash rate hike affect a $500,000 home loan?

• 25 percentage point rate rise: $84 more in monthly repayments, and $1,217 more total since April 2022.

How could this cash rate hike affect a $750,000 home loan?

• 25 percentage point rate rise: $125 more in monthly repayments, and $1,826 more total since April 2022.

How could this cash rate hike affect a $1,000,000 home loan?

• 25 percentage point rate rise: $167 more in monthly repayments, and $2,435 more total since April 2022.

Source: www.canstar.com.au – 06/06/2023 Monthly repayment calculations based on a loan repaid using principal & interest repayments over a total loan term of 30 years at a loan-to-value ratio (LVR) of 80%. Repayment calculations interest rate based on a starting rate of 5.73% (average owner occupier variable rate pre-May cash rate of 2.98% with May, June, July, August, September, October, November, December, February, March and May cash rate increases applied). Repayments rounded to the nearest whole dollar.

Financial “misery index” at its highest level since the GFC

The past year has taken a financial toll on many Aussies, with frequent rate rises and soaring inflation causing pain to home loan borrowers and renters alike and adding to the cost of daily necessities.

Recent analysis from University of Melbourne academics Guay Lim and Sam Tsiapilias indicates that the nation’s financial “misery index” is now just short of the point that it reached early in the global financial crisis of 2008.

The “misery index” combines inflation and unemployment data in an attempt to gauge how the average citizen might be faring economically. In 2022, the index jumped almost 220% as interest rates and inflation both peaked.

For comparison’s sake, the misery index lifted just 62% in the months leading up to the GFC in 2008.

Lim notes that levels of economic “misery” are likely to remain high for some time, even as inflation eases, as both the jobless rate and the RBA cash rate are increasing.

Lowe tells struggling Aussies to get a roommate

At a senate estimates meeting last week, RBA governor Philip Lowe addressed the nation’s current housing crisis, saying that the average number of people living in each dwelling has decreased, while Australia is not building enough houses to keep up with population growth.

Lowe suggested that the solution to this problem is for house prices and rents to keep increasing, to deter people from moving out of home, or alternatively, to encourage them to live with a roommate.

“The higher prices do lead people to economise on housing, don’t they?” he said to the committee. “Kids don’t move out of home because the rent is too expensive, or you decide to get a flatmate or a housemate.”

“We need more people on average to live in each dwelling and prices do that.”

His position was criticised by some as out of touch, with Maiy Azize, the director of housing crisis advocacy group Everybody’s Home, accusing the central bank governor of “lecturing” those already caught up in the housing crisis.

Azize said that in her view, while more homes would help ease the crisis, this is only “half the answer” and that policy to ensure that these homes are affordable to those who need them would also be required.

How can you save on your home loan rate?

If your fixed rate home loan is about to come to an end, or even if you think you could be getting a deal than what you’re currently paying, you can compare home loans with Canstar to see what your options might be, and if there’s a more favourable deal out there for you.

If you are thinking about refinancing your current home loan to a new lender and want to know more about the process and how it works, Canstar has a list of seven mistakes to avoid when refinancing, so you can be better prepared to strike a new deal.

Cover image source: Cast Of Thousands/Shutterstock.com