Australian borrowers are being warned to prepare for higher interest rates as the Reserve Bank gives a big hint they will raise rates more than once this year.

The Commonwealth Bank, Australia’s biggest home lender, has also dramatically increased its fixed rates in another sign the big banks are bracing for a series of official interest rate rises in 2022 and 2023.

Elevated inflation has seen the Reserve Bank of Australia abandon its ‘patient’ approach to interest rates, after last year promising it would keep the cash rate on hold at a record-low of 0.1 per cent until 2024 ‘at the earliest’. 

RBA deputy governor Michele Bullock has warned that the central bank’s position on interest rates and inflation had changed.

‘I don’t think anyone at the beginning of the pandemic would have predicted we would be in a position now around the world where inflation was picking up so dramatically,’ she told a Senate hearing.

Australians are being warned to prepare for higher interest rates as the Reserve Bank of Australia gives its biggest hint that it will increase rates this year (pictured is an auction at Glen Iris in Melbourne)

Big banks all expecting interest rates to surge

COMMONWEALTH: Reserve Bank rate rises to start in June. Cash rate to reach 1.25 per cent by February 2023

WESTPAC: Increases to start in June. Cash rate to reach 2 per cent by June 2023

NAB: First move in June. Cash rate to reach 2.25 per cent by August 2024

ANZ: Hikes to start in June. Cash rate to reach 2 per cent by November 2023 and peak above 3 per cent, but not until sometime after 2023

Source: RateCity

‘I think the best thing to do in those circumstances is to look at the evidence,’ she said.

‘If the evidence is telling you that something else is happening, you change your view. 

‘That’s what we’ve done.’ 

The Commonwealth Bank on Wednesday raised fixed rate rises, hiking rates by as much as 0.55 per cent for owner occupiers and 0.9 per cent for investors.

The big banks have been raising their fixed rates since the end of last year after inflation hit 3.5 per cent, a level well above the Reserve Bank’s 2 to 3 per cent target even before Russia invaded Ukraine.

The Treasury budget papers predicted a 4.25 per cent headline inflation rate, which would be the highest since 2008, and RBA Governor Philip Lowe this month said higher petrol prices will result in ‘a further lift in inflation over coming quarters’.

Last year, Dr Lowe repeatedly promised the cash rate would stay on hold until 2024 ‘at the earliest’ but now the RBA looks set to raise rates in 2022 for the first time since November 2010. 

The big banks have accordingly prepared themselves by raising fixed rates above 3 per cent but keeping variable rates low at  levels closer to 2 per cent.

A Canstar analysis showed three-year fixed rates among the big four banks have risen by an average of 0.99 per cent since the start of 2022.

This has seen monthly mortgage repayments for a $500,000 loan rise by $277, with the increase affecting borrowers with a 20 per cent mortgage deposit who or are refinancing or taking a new loan. 

The Commonwealth Bank, Australia's biggest home lender, on Wednesday raised fixed rate rises, hiking rates by as much as 0.55 per cent for owner occupiers and 0.9 per cent for investors

The Commonwealth Bank, Australia’s biggest home lender, on Wednesday raised fixed rate rises, hiking rates by as much as 0.55 per cent for owner occupiers and 0.9 per cent for investors

Variable rate customers are in for the most pain once the Reserve Bank raises the cash rate. 

Most economists expect the Reserve Bank of Australia will increase the cash rate in June, predicting it could reach 1 per cent by the end of the year, a jump of 0.9 percentage points.

They also predict more rate increases next year. 

The big four banks now expecting the first cash rate increase to come in June.

The major banks have on average increased the popular three-year fixed rate by as much as 0.99 percent this year alone, a Canstar analysis showed.

If the cash rate hit 1 per cent by the end of the year and the banks passed on the hike in full, the average variable rate would rise from 2.99 per cent to 3.89 per cent.

Monthly repayments in Melbourne for a median-priced $999,037 house would rise by $400 a month to $3765 – or an extra $4,800 a year for a $799,230 mortgage.

In Sydney, where the mid-point is $1.403million, they would rise by $561 per month to $5288 – an extra $6732 a year – on a $1.122million mortgage.

If the cash rate hit 1 per cent by the end of the year and banks pass on the hike in full, the average variable rate would rise from 2.99 per cent to 3.89 per cent. In Sydney (houses at Cecil Hills, pictured), where the mid-point is $1.403million, they would rise by $561 per month to $5288 – an extra $6732 a year - on a $1.122million mortgage

If the cash rate hit 1 per cent by the end of the year and banks pass on the hike in full, the average variable rate would rise from 2.99 per cent to 3.89 per cent. In Sydney (houses at Cecil Hills, pictured), where the mid-point is $1.403million, they would rise by $561 per month to $5288 – an extra $6732 a year – on a $1.122million mortgage

Sydney and Melbourne house prices slip as other cities grow

SYDNEY: Down 0.1 per cent in March but up 20.6 per cent over the year to $1,403,154

MELBOURNE: Down 0.2 per cent in March but up 11.9 per cent annually to $999,037

BRISBANE: Up 2.1 per cent in March, up 32.1 per cent annually to $856,731

ADELAIDE: Up 2 per cent in March, up 28.7 per cent annually to $658,446

PERTH: Up 1 per cent in March, up 7.2 per cent annually to $568,108

HOBART: Up 0.3 per cent in March, up 21.9 per cent annually to $791,587

DARWIN: Up 0.7 per cent in March, up 7 per cent annually to $569,647

CANBERRA: Up 0.8 per cent in March, up 22.4 per cent annually to $1,055,812

Source: CoreLogic median house price data for March 2022 

As the rates rise, house prices could also fall, with Reserve Bank modelling suggested drops of 15 per cent over two years if the cash rate hit two per cent, up from a record-low 0.1 per cent now. 

Houses and units are taking longer to sell as a most Australians decide now is a bad time to buy property because it is too expensive.

The end of two per cent fixed mortgage rates and speculation about a Reserve Bank rate rise in coming months have hurt auction clearance rates, where homes sell above the reserve price.

This has caused a property downturn in Sydney and Melbourne, as prices have continued to rise in Brisbane, Adelaide, Perth, Hobart and Canberra. 

Sydney postcodes near the city were home to 13 of Australia’s 20 worst-hit suburbs for house price falls during the March quarter, with the rest in Melbourne.

When it came to apartments losing value at the start of 2022, half of the 20 worst-affected postcodes in a capital city were on Sydney’s ritzy lower north shore and northern beaches, with cheaper suburbs in Melbourne’s west also going backwards.

Regional area prices are falling too, at least for units, with Albury on the NSW side of the Murray River doing particularly badly.

Like previous downturns, expensive areas in Australia’s biggest cities are again the first to falter.

Real estate values are now particularly vulnerable in inner-city areas where prices are typically much higher.

Beaconsfield in Sydney’s inner south is the worst-affected suburb with the middle house price in the March quarter falling by 7.2 per cent to $1.793million, CoreLogic data has revealed.

Nearby Zetland suffered a 6.3 per cent fall taking prices back to $1.828million.

The big banks have been raising their fixed rates since the end of last year after inflation hit 3.5 per cent, a level well above the Reserve Bank's 2 to 3 per cent target (pictured is an auction at Paddington in Sydney last year)

The big banks have been raising their fixed rates since the end of last year after inflation hit 3.5 per cent, a level well above the Reserve Bank’s 2 to 3 per cent target (pictured is an auction at Paddington in Sydney last year)

Regional areas losing value

1. WEST ALBURY, southern NSW: down 6.4 per cent to $320,271

2. ALBURY, southern NSW: down 6.2 per cent to $370,031

3. LAVINGTON, Albury north: down 5 per cent to $251,025

4. NORTH ALBURY, southern NSW: down 3.4 per cent to $263,593

5. GRAFTON, NSW north coast: down 2.3 per cent to $327,485

CoreLogic units data on median prices in the March quarter of 2022 

Surry Hills, the home of heritage-listed terraces, saw its mid-point price fall by 6.1 per cent to $2.172million.

In Sydney’s inner west, gentrified Newtown saw its house prices drop by 5.8 per cent to $1.789million as falls were recorded in the adjoining hipster suburbs of Camperdown, Darlington, Forest Lodge, Waterloo and Darlinghurst.

Melbourne’s inner-city is in danger too with Cremorne suffering a 6.4 per cent drop in house values, taking them back to $1.446million.

Its priciest postcodes are also losing favour among buyers with South Yarra’s median house price falling by 4.8 per cent to $2.276million as uber-dear Toorak’s price dived by 4.4 per cent to a still expensive $5.017million. 

On the apartment front, Sydney’s lower north shore was in trouble with Cremorne Point values diving by 5.8 per cent to $1.793million.

It was one of four lower north shore postcodes on the list, which included Wollstonecraft on the train line, where former prime minister John Howard is a long-time resident.

The northern beaches was also suffering falls with Curl Curl, Freshwater, Forestville, Queenscliff, Avalon and Newport on the list.

Inner-city areas of Melbourne were suffering too with Hampton East seeing its median apartment price fall by 4.5 per cent to $794,023, as Hughesdale and Murrumbeena slipped.

Affordable suburbs in Melbourne’s west also struggled with Melton West units dropping by 3.2 per cent to $399,355.

But Australia’s worst affected market for apartments is surprisingly Albury on the NSW-Victorian border, with this city home to four of the five worst-affected suburbs in the regions.

West Albury unit values lost 6.4 per cent in three months, falling back to $320,271, as Albury, Lavington and North Albury also suffered drops.

Grafton on the New South Wales north coast suffered a 2.3 per cent decrease that took its unit values back to $327,485. 

Biggest city house price drops

1. BEACONSFIELD, Sydney inner south: down 7.2 per cent to $1,793,438

2. CREMORNE, Melbourne inner east: down 6.4 per cent to $1,446,443

3. ZETLAND, Sydney inner south: down 6.3 per cent to $1,828,427

4. SURRY HILLS, Sydney inner: down 6.1 per cent to $2,172,093

5. NEWTOWN, Sydney inner west: down 5.8 per cent to $1,789,143

6. CAMPERDOWN, Sydney inner west: down 5.7 per cent to $1,840,345

7. DARLINGTON, Sydney inner west: down 5.4 per cent to $1,848,232

8. FOREST LODGE, Sydney inner west: down 5.2 per cent to $2,133,421

9. WATERLOO, Sydney inner south: down 4.9 per cent to $1,472,605

10. BIRCHGROVE, Sydney inner west: down 4.9 per cent to $3,111,720

11. ALEXANDRIA, Sydney inner south: down 4.8 per cent to $1,969,099

12. SOUTH YARRA, Melbourne inner east: down 4.8 per cent to $2,276,063

13. ROSEBERY, Sydney inner south: down 4.5 per cent to $2,135,034

14. TOORAK, Melbourne inner east: down 4.4 per cent to $5,017,216

15. ERSKINEVILLE, Sydney inner west: down 4.3 per cent to $1,742,513

16. PARK ORCHARDS, Melbourne outer east: down 4.3 per cent to $2,082,320

17.  WONGA PARK, Melbourne outer east: down 4.3 per cent to $1,580,264

18. DARLINGHURST, Sydney inner east: down 4 per cent to $2,361,148

19. CARLTON NORTH, Melbourne inner north: down 3.9 per cent to $1,721,076

20. BRUNSWICK WEST, Melbourne inner north: down 3.9 per cent to $1,443,226

Source: CoreLogic data showing falls in median house prices during the March quarter of 2022 

 

Biggest city unit price declines

1. CREMORNE POINT, Sydney lower  north shore: down 5.8 per cent to $1,793,355

2. CURL CURL, Sydney northern beaches: down 4.6 per cent to $1,509,341

3. HAMPTON EAST, Melbourne inner south: down 4.5 per cent to $794,023

4. FRESHWATER, Sydney northern beaches: down 4.4 per cent to $1,223,392

5. FORESTVILLE, Sydney northern beaches: down 4.4 per cent to $1,244,056

6. QUEENSCLIFF, Sydney northern beaches: down 4.2 per cent to $1,380,752

7. AVALON BEACH, Sydney northern beaches: down 3.8 per cent to $1,204,119

8. CREMORNE, Sydney lower north shore: down 3.8 per cent to $1,329,282

9. HUGHESDALE, Melbourne inner south: down 3.8 per cent to $665,470

10. BRIGHTON, Melbourne south east: down 3.7 per cent to $1,171,491

11. MONA VALE, Sydney northern beaches: down 3.6 per cent to $1,526,617

12. RUSSELL LEA, Sydney inner west: down 3.3 per cent to $1,110,558

13. NEWPORT, Sydney northern beaches: down 3.3 per cent to $1,401,618

14. MURRUMBEENA, Melbourne inner south east; down 3.3 per cent to $627,729

15. HEIDELBERG, Melbourne north east: down 3.3 per cent to $696,082

16. WATERLOO, Sydney inner south: down 3.2 per cent to $951,240

17. WOLLSTONECRAFT, Sydney lower north shore: down 3.2 per cent to $1,304,016

18. KURRABA POINT, Sydney lower north shore: down 3.2 per cent to $1,582,945

19. MELTON WEST, Melbourne west: down 3.2 per cent to $399,355

20. HEIDELBERG WEST, Melbourne north east: down 3.2 per cent to $643,809

 



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