Homeowners can expect more interest rate rises

New analysis from Domain predicts the Reserve Bank will lift interest rates 0.25% to a 10-year high of 3.1% at its December 6 meeting.

The RBA has consistently hiked the OCR since May this year as it continues its mission of reining in inflation to its 2% to 3% target. The OCR has increased from 0.1% to 2.85%, a total increase of 2.75% in just seven months, with the consensus that mortgage holders can continue to see increases into 2023.

Domain’s latest analysis shows for a household with a $1m mortgage, monthly repayments have already increased by more than $1,600 and could increase an additional $152 with the looming December decision. 

Domain chief of research and economics Dr. Nicola Powell (pictured above left) said history and previous market trends could provide an insight into what mortgage holders could expect in 2023.

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“Downturns have been the equivalent of just over one-quarter of the duration of the preceding upswing, so we know this downturn won’t last forever,” Powell said.

“With interest rates rising and property prices falling, it can understandably make homeowners feel uncertain about their property journey. But our analysis of directly comparing the steepness and duration of an upswing and subsequent downturn since 1995 should provide some bigger picture perspective.” 

Powell said the rapid increase in interest rates had triggered a wave of refinancing as Australians on fixed-rate home loans started to revisit their finances.

“This trend is expected to continue into 2023 as more Australians see their fixed rate expiring,” she said. “Customers are responding in a variety of different ways. Many are looking at refinancing to try and alleviate the pressure on the household budget. For buyers, we have seen a more cautious approach to their purchase and taking their time to see what happens with rates in the new year.”

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Domain property editor Alice Stolz (pictured above right) said homeowners should be prepared for future interest rate rises.

“The message from the RBA is clear. Tighten the purse strings and hold on while we ride out the uncertainty of this price cycle,” Stolz said.

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“Savvy buyers are now more mindful about what they can commit to in terms of a home loan and they’re also pricing in future rate hikes. Along with these basics, the next few months should be about flexibility.”

Stolz said now was the time to rethink property types or be more open to exploring neighbouring suburbs that might offer a buyers desired home for less.

“Reflect on other household costs and your overall budget and make sure you’re getting the best interest rate for your savings account,” she said. “Speak to brokers to understand what payments would be to lock in a fixed rate now, rather than waiting for another few months when rates could be higher.”

What could my extra repayments be after the December RBA OCR announcement?                                           

                                     Scenario 1 – cash rate of 2.85%                   Scenario 2 – cash rate of 3.1%

_{Source: Domain Home Loans Repayment Calculator. The above table shows the approximate amounts monthly home loan repayments could increase if interest rates rise. The above table is based on a 30-year principal and interest loan with an initial 4.75% variable interest rate per annum.}