One in five borrowers said paying their mortgage will be “touch and go” over the next six months, as they brace for one final rate rise on Tuesday, with the Reserve Bank tipped to hike the OCR by 25 basis points, new research by Mozo.com.au has found.
“After a year of relentless rate rises, it’s no wonder households are really battling to pay their mortgages,” said Claire Frawley, Mozo personal finance expert. “Most borrowers were not expecting rate rises to kick in until late 2024, but this final push from the RBA means that most mortgage holders will experience a massive 300-basis-point increase to their variable home loans this year.”
While some mortgage holders have been able to adapt to higher interest rates, Mozo research showed that a quarter of borrowers are living paycheck to paycheck.
“Aussies are already stretched thin so this last rate rise of the year is really going to hurt and many people will be faced with deciding which expense to cut out this month to be able to meet their mortgage repayments,” Frawley said, adding that borrowers should now call their lender and negotiate a better interest rate or refinance “if they won’t budge.”
Banks had mixed responses to the series of rate hikes – some cut rates shortly after increasing them, while others are going beyond the hikes. There were also those that introduced smaller increases to their borrowers on lower LVR tiers.
Last week, ANZ slashed its variable rates, after raising them earlier in the month following the latest rate hike. In the past two months, seven other lenders have also trimmed rates after lifting them to follow the RBA cash rate increase.
Mozo.com.au noted that after the September rate hike, more lenders started to pass on more than the rate hike amount to customers, meaning fewer providers were passing on just the rate hike amount.
There are also lenders like Commonwealth Bank, Macquarie, and St. George that have started to pass on different amounts to customers depending on their LVR. Customers with 60% LVRs receive a partial rate increase, while those with an 80% LVR or higher are receiving the full rate hike amount.
“Lenders are rewarding customers who have paid off more of their mortgage and have a lower loan-to-value ratio,” Frawley said. “While this is good news for those with more equity in their homes, it doesn’t help borrowers who have just taken on a mortgage.”
Mozo.com.au said the average variable home loan rate for owner-occupiers across its database is 5.41%, which was 234 bp higher than the 3.07% average in January.
If lenders pass on the 25 bp rate hike in December, a borrower with a $500,000 mortgage, on the average variable rate, would be forking out $3,118 a month – that’s $918 more since the start of the year when the cash rate was 0.1%, Mozo.com.au said.
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