Cash rate pushed higher
IT did not take long for Australia’s big banks to pass along the RBA’s second cash rate hike of 2022. Westpac, NAB, ANZ and CBA all made announcements within a day.
And a Commonwealth Bank spokesman has already forecast when rates will next be cut — mid-year 2023.
The RBA decision to increase the cash rate by 50 basis points at its June meeting was seen as advancing the pace of “normalising interest rates” following a long period of historically low rates.
It was the largest increase since February 2000 and the second time since 2010 that increases came in back-to-back months.
PropTrack economist Paul Ryan said the larger than ‘business-as-usual’ hike indicates the Reserve Bank of Australia is increasingly concerned about domestic inflationary pressures, and has assessed an increase was needed to get them under control.
He said the higher-than-expected increase in the cash rate will be taken cautiously by buyers and will likely impact sentiment.
Mr Ryan said housing price growth has slowed significantly, with annual price growth falling from 24 per cent six months ago to only 14 per cent in the year to May.
This slowdown has particularly affected the most expensive capital markets of Sydney, Melbourne but also Hobart which recorded price falls in April and May.
“More interest rate increases are expected in 2022, as inflation has been higher than anticipated by the RBA. But just how high interest rates will be at the end of the year is a key source of uncertainty for the housing market,” he said.
“Financial markets have priced in a cash rate two-percentage points higher at the end of the year, which would raise mortgage repayments by another 24 per cent.
“Major bank forecasters, however, do not view it likely the RBA will increase rates this quickly, predicting rate rises closer to half that much.”
Analysis by Canstar shows for a borrower with a 30-year $500,000 mortgage, the impact of the May and June cash rate increases would add $208 to their monthly repayment.
A borrower with a $1m mortgage would see their monthly repayments rise by $415.
Canstar’s finance expert Steve Mickenbecker says a cash rate of 2.5 per cent was now a “likely outcome”.
“Higher interest rates will take the steam out of the market … existing borrowers will likely be viewing rising interest rates with trepidation,” he said.
Real Estate Institute of Australia president Hayden Groves said the interest rate rise will impact those with large mortgages, in particular.
“The cash rate sitting at 0.85 will impact on households carrying a high amount of debt and will lead to an overall reduction in housing affordability,” he said.
“The reality is that there is still a chronic under-supply of homes to buy and rent across Australia, so until this is addressed — including dealing with the construction backlog for new homes — we are unlikely to see any drastic shifts in response to the RBA’s rates rise agenda.”