Homeowners have been slugged with their ninth interest rate hike in less than a year after the Reserve Bank of Australia lifted the cash rate a further 25 basis points to 3.35%. 

RBA Governor Philip Lowe said further interest rate increases would be needed over the months ahead to ensure that inflation returned to the RBA’s 2-3% target range. 

In Australia, CPI inflation over the year to the December quarter was at its highest since 1990 at 7.8%, while inflation in underlying terms was 6.9%.  

Shore Financial founder and CEO Theo Chambers said we hadn’t seen increases this aggressive over such a short period of time since the early 1990s.   

“What we are going to see in the next 12 months is more volatility in the property market,” Chambers said.  

“There’s some pain to come off the back of $370 billion worth of fixed loans coming off fixed rates of 2% and landing on variable rates of above 5%. Later this year, a lot of households will see their repayments more than double overnight. That coupled with decreased consumer spending does mean the economy will feel a bit of a pinch, so there are still some turbulent times ahead.  

“However, in Sydney, there is still a huge shortage of supply in the property market. There’s some pent-up demand with people who held off buying last year still waiting on the sidelines for their moment to jump in. Investors are definitely seeing the opportunity right now as well, with rental yields looking a bit more attractive. It will undoubtedly be an interesting 12 months ahead.”  

CoreLogic found that the latest increase added roughly $77 per month in repayments to a $500,000 variable rate owner-occupier mortgage and $116 per month to a $750,000 mortgage.   

Since the recent low point in April last year, on the same loan amounts, repayments have increased by approximately $821 per month and $1,232 per month respectively. 

CoreLogic Research Director Tim Lawless said considering most lenders were showing mortgage arrears to be around record lows last year, it’s likely some evidence of rising mortgage stress will start to emerge in 2023 under such substantially higher interest rate settings, with the potential for a more noticeable lift as further fixed rate borrowers migrate over to variable mortgage rates. 

However, any material rise in mortgage arrears was unlikely unless labour markets loosened substantially, Lawless said. 

For the housing sector, higher interest rates represented a further downside risk to purchasing activity and values. 

National home values peaked in April last year and have fallen 8.9% since then. 

“With borrowing costs continuing to rise and the subsequent reduction in borrowing capacities, property price falls are likely to continue and accelerate in 2023, with the more expensive cities likely to see the largest price falls,” PropTrack Director Economic Research Cameron Kusher said.  

“Nationally, we are forecasting prices to fall by a further 7% to 10% by the end of this year. This forecast is based on the assumption that the cash rate will see a total increase of 50 basis points from its December 2022 level (3.1%). With the RBA’s hike of 25 basis points today, we’re expecting an additional rate rise of 25 basis points, or thereabouts, likely to follow next month. Thereafter, we expect rates to remain on hold, with the potential for them to be reduced in late 2023 or early 2024. 

“We anticipate these further interest rates rises will push prices lower. However, a lower interest rate peak and earlier than expected interest rate cuts could ease price falls.”