Interest rate hikes: Here’s what it means for mortgage payments and your budget – Henry’s Club

Australians are facing more the cost of living The pressure comes after interest rates are hiked again – but the new Labor government is promising relief in its October budget.

After the monthly meeting on Tuesday, the Reserve Bank of Australia increased the cash rate from 0.35 percent to 0.85 percent.

This was the largest rate increase since February 2000 and the second since inflation March quarter down 5.1 per cent – Economists forecast this will again be revised upwards in the June quarter as electricity, food and fuel continue to grow.

Hours later, Westpac became the first of the four big banks to announce an increase in home loan variable interest rates by 0.50 per cent per annum for new and existing customers from June 21.

Following the RBA’s announcement, Treasurer Jim Chalmers said Australians with an average mortgage would need to pay an additional $87 a month with $33,000 remaining.

The average new mortgage holder of about $595,000 will need to pay about $157 more per month.

“This will be very difficult news for all Australians who are already facing the skyrocketing cost of living in this country,” Chalmers said.

The treasurer said the government knew the Australian team was struggling and that the October budget would provide cost-of-living relief.

“I will present a budget in October and a significant part of it will focus on cost of living packages around childcare and drugs, trying to reduce electricity bills over time, trying to re-raise real wages,” he said. used to be.”

But the biggest problem before the government is the rising electricity prices.

The issue is so pressing that Labor Resources Minister Madeleine King said the nation urgently needed to bring more coal power plants back online ‘because that is the missing piece in the puzzle right now’.

‘There have been unplanned interruptions due to various reasons; Many of those operators are out of control and I accept that, but I hope they are doing their level best to make sure that this power source also comes online,’ Ms. King told ABC Radio. . ,

His call for more coal came after Labor spent six weeks talking up its climate change ambitions during the election campaign.

budget relief in october

Labor plans to increase the childcare subsidy and reduce the maximum cost of drug scripts from $42.50 to $30 for each family earning less than $530,000.

It also claims it can reduce its electricity bill by $275 per year – but that’s not the case with massive investments in renewable energy by 2025.

Employment Minister Tony Burke said the government was not ruling out subsidizing rising electricity costs with cash payments.

Europe has also been hit by rising costs following Russia’s invasion of Ukraine, with the UK government announcing it will give all households a one-time $690 (£400) electricity bill credit in October.

Asked whether the Australian government would consider a similar measure, Burke told ABC radio: ‘We are not deciding anything at this time.

However, Dr Chalmers has said it is unlikely the 22 cents-a-litre-fuel duty cut will be extended beyond September 28.

This means the fuel will increase by 22 cents after that date.

Heavy loss to tenants due to hike in rent

Meanwhile, the hike in interest rates will not only impact homeowners.

It can also drive up rents as landlords who have taken out a mortgage to invest in the property try to offset their higher payments.

Alan Oster, NAB’s chief economist, said: ‘Basically, the rate hike will put pressure on renters.

‘Not enough to reduce them but investors will want to try to offset the impact of the rate hike on their cash flow.’

However, the main driver of increase in fares is higher demand which is seen in the form of lower vacancy rates.

The national vacancy rate fell to just 1.1 percent in April, giving landlords the upper hand.

According to SQM Research, fares across the country have increased by 13.3 per cent in the first year till May 12.

The increase was 15.2 per cent in Sydney, 13 per cent in Melbourne and 16.8 per cent in Brisbane.

“We are already seeing a very tight rental market nationally, which is likely to result in higher rents in the coming year,” said Angela Jackson, principal economist at Impact Economics.

If the average rent increase is repeated over the past 12 months, the national average rent of $490 will increase to $550.

Mortgages rise, consumer spending falls

Business is also getting affected due to increase in interest rates, loans are getting expensive.

They may also be indirectly affected by a drop in sales as customers with debt feel they have less money to spend on non-essential items.

The 0.50 per cent increase is the second increase after the central bank shifted from a record low setting of 0.1 per cent in May to curb spiraling. inflation,

Four big financial institutions, including Commonwealth Bank, ANZ, Westpac and NAB, raised interest rates in line with the RBA last month and are expected to do the same again.

Further rapid-fire rate hikes are predicted to follow widely every month until at least the end of the year.

Economists had widely predicted a 0.25 or 0.40 percent increase in the cash rate.

How Higher Interest Rates Can Lower Costs

RBA Governor Philip Lowe now has no other way to control the pressing cost of living after the Australian government provided more than a third of a trillion dollars in stimulus during the COVID pandemic in 2020 and 2021.

Liberal spending coupled with record low interest rates to spur economic growth have driven inflation in the year to 5.1 percent in March – the fastest increase since 2001.

Australian households have been facing shortages of up to 50 per cent with few fruits and vegetables since the start of the year, petrol prices exceeding $2 a liter and wholesale energy bills skyrocketing by 141 per cent.

“Inflation has increased significantly in Australia,” Lowe said in the RBA’s monetary statement accompanying the decision.

‘While inflation is lower than in most other advanced economies, it is higher than previously thought.

‘Today’s increase in interest rates by the Board is another step in the withdrawal of extraordinary monetary support that was put in place to help the Australian economy during the pandemic.’

Several other global and domestic factors have also added to the pressure on the prices.

Western powers imposed sanctions on major oil producer Russia after prices soared amid a supply crunch after Vladimir Putin’s army invaded Ukraine in February.

“The board is also taking note of the global outlook, sustained by the war in Ukraine and its impact on energy and agricultural commodity prices,” Lowe said.

‘Real household incomes are under pressure in many economies and financial conditions are dire, as central banks withdraw monetary policy support in response to broad-based inflation.

‘There is also uncertainty about Kovid, especially in China.’

At the same time, supply chain chaos still rests on the heels of the COVID pandemic adding to the problem.

For Australia, recent floods and severe cold have also affected food production and energy demands.

The RBA expects that strengthening money supply will help offset some of these costs.

“Central banks around the world are struggling to stay on top of inflation, and the RBA doesn’t want to be one of them,” said Sally Tindall, research director at RateCity.

She warns that the cash rate is likely to rise to about 1.75 percent by Christmas, forcing someone to cough up an additional $532 a month to pay $600,000.

‘Don’t assume that you can take these growths in your progress. Decide what your payoff will look like by Christmas next year and make sure the number fits your budget,’ said Ms. Tindall.

‘Many people think that just because rates are rising, it is not a good time to renegotiate their home loan. But in many cases this is not true.

“Banks still need to drive new business through the door, and they are generally doing so by offering sharp discounts to lenders willing to change lenders,” he said.