The latest 0.25% increase in the official cash rate to 4.1% adds $2,269 to the minimum monthly repayments on a $1 million variable rate mortgage since the RBA began raising rates in May last year.
Sally Tindall from RateCity warns variable rate mortgage borrowers who have not negotiated a lower rate with their lender or searched around for a cheaper rate will be paying nearly 7% once the recent rate increase is factored into their payment schedule.
Depending on the bank, it can take up to three months for higher interest rates to be reflected in repayments.
According to Tindall, many variable rate borrowers have no clue what rate increases they have begun paying and which ones are still to come, making budgeting difficult.
Assuming there are two more 0.25% rate increases in July and August, someone with a $1 million mortgage would see a $2,576 increase in monthly repayments since rates began to rise in May last year.
Monthly repayments on a $750,000 mortgage would increase by $1,932, according to RateCity.
“If the cash rate keeps climbing, we could see an increase in ‘For Sale’ signs in the second half of this year, as over-leveraged investors offload part of their portfolio and over-burdened families relocate to get some relief”, Tindall warns.
Separate analysis from RateCity also shows that borrowing capacity for a family of four, where one parent works full-time and the other part-time at half the wage, on a combined annual income of $143,221 before tax, will have seen their maximum borrowing capacity drop by $247,700 as a result of the 12 RBA hikes:
With nearly 500,000 fixed rate mortgages scheduled to reset to variable rates of around 7% over the remainder of this year, mortgage stress will soar:
The impact will be harshest for the more than 50% of first home buyers who took out cheap fixed rate mortgages in 2021 near the peak of the market:
Modelling by the RBA, based on a peak cash rate of only 3.6%, showed that the share of household income going towards debt repayments will hit unprecedented levels in 2024 once the fixed rate mortgage reset runs its course:
Many recent borrowers, therefore, face the horrible prospect of having to sell their homes.
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