RBA May rate hike: Average Aussies now need a $6,400 pay bump to keep up

After giving Aussie borrowers a break for a month, the Reserve Bank of Australia (RBA) has again raised the cash rate, as it attempts to keep inflation under control.
At its May meeting this week, the RBA this week raised the cash rate by 25 basis points to 3.85%. The move comes after the central bank gave Aussie home loan borrowers a temporary interest rate reprieve in April, pausing the rate hikes that have been standard since this time last year. The move comes in the wake of scathing review into how the RBA conducts business, which recommended the biggest shake-up of the central bank in decades.
The most recent Australian Bureau of Statistics (ABS) figures show that inflation has eased slightly in Australia. The March 2023 quarter showed an annual inflation rate of 7%, which is still concerningly high, but is down from the 7.8% annual inflation figure recorded in the December 2022 quarter.
Even though inflation has eased, it is still above the RBA’s target rate, and this week’s move signals that the cycle of rate rise pain may not yet be over for Aussie borrowers.
How could this rate rise affect your home loan?
Before April’s cash rate hold, variable rate mortgage borrowers in Australia faced almost a year of monthly interest rate hikes, making monthly repayments considerably more expensive than this time last year.
After this month’s RBA cash rate hike, banks and lenders are likely to follow suit by raising their own home loan variable rates, so 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: $82 more in monthly repayments, and $1,133 more total since April 2022.
How could this cash rate hike affect a $750,000 home loan?
- 25 percentage point rate rise: $124 more in monthly repayments, and $1,701 more total since April 2022.
How could this cash rate hike affect a $1,000,000 home loan?
- 25 percentage point rate rise: $165 more in monthly repayments, and $2,268 more total since April 2022.
Source: www.canstar.com.au – 02/05/2023 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 April cash rate increases applied). Repayments rounded to the nearest whole dollar.
The comparison rate for all home loans and loans secured against real property are based on secured credit of $150,000 and a term of 25 years.
^WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.
Up to $4,000 when you take out a IMB home loan. Minimum loan amounts and LVR restrictions apply. Offer available until further notice. See provider website for full details. Exclusions, terms and conditions apply.
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Aussies would have needed $6,400 wage boost to keep up with inflation
If you’re feeling the pinch right now thanks to rising interest rates and the increased cost of goods at the supermarket, you’re certainly not alone. Recent Canstar analysis, undertaken before the latest cash rate hike, shows the average working Aussie will already have needed a $6,442 annual pay raise to keep pace with inflation. After today’s hike, this figure will go up yet again.
“With household budgets continuing to bleed because of higher mortgage or rental payments, there will be more pressure on employers to meet wage demands,” says Canstar finance expert Effie Zahos. Given the costs of variable rate mortgage repayments this year relative to last, many Aussies may well be in urgent need of that $6,442 salary bump.
“If a pay rise is off the table, consider asking your boss for other perks or benefits including health insurance cover and or flexibility in working arrangements,” adds Zahos. “Alternatively, selling your skills on platforms such as Airtasker is another way to give your income a boost.”
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: Ground Picture/Shutterstock.com
This article was reviewed by our Editor-in-Chief Nina Tovey before it was updated, as part of our fact-checking process.

Alasdair Duncan is Canstar's Content Editor, specialising in home loans, property and lifestyle topics. He has written more than 500 articles for Canstar and his work is widely referenced by other publishers and media outlets, including Yahoo Finance, The New Daily, The Motley Fool and Sky News. He has featured as a guest author for property website homely.com.au.
In his more than 15 years working in the media, Alasdair has written for a broad range of publications. Before joining Canstar, he was a News Editor at Pedestrian.TV, part of Australia’s leading youth media group. His work has also appeared on ABC News, Junkee, Rolling Stone, Kotaku, the Sydney Star Observer and The Brag. He has a Bachelor of Laws (Honours) and a Bachelor of Arts with a major in Journalism from the University of Queensland.
When he is not writing about finance for Canstar, Alasdair can probably be found at the beach with his two dogs or listening to podcasts about pop music. You can follow Alasdair on LinkedIn.
The comparison rate for all home loans and loans secured against real property are based on secured credit of $150,000 and a term of 25 years.
^WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.
Try our Home Loans comparison tool to instantly compare Canstar expert rated options.
The comparison rate for all home loans and loans secured against real property are based on secured credit of $150,000 and a term of 25 years.
^WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.