Experts expect 25 bp cash rate rise

Oksana Patron

31 October 2022

The majority of experts expect another increase of 25 basis points in cash rate on Tuesday which will bring the cash rate to 2.85% in November, according to Finder RBA Cash Rate Survey.

The study, which surveyed 39 experts and economists, confirmed that 97% believed the cash rate would change and half of experts agreed with the Reserve Bank of Australia’s expected increase of 25 basis points while one in five were of the contrary opinion and claimed the RBA should instead hold the cash rate.

This means that there would be little relief for Australian homeowners given that since April $9,000 was be added to the annual cost of a $500k mortgage.

As a result, 4.1 million of households were predicted to plunge into mortgage stress.

According to Finder’s research, close to 500,000 people said they would have to sell their property if hit with another hike, while a further 3% admitted they would default on their mortgage if their interest rate went up any higher.

Graham Cooke, head of consumer research at Finder, said a seventh consecutive rate hike – 275 basis points in total – would be a tough burden for many households and it was “just too much” for millions of households.

“The current series of rate hikes has added almost $9,000 to the annual cost of a $500k mortgage. Another 25-basis-point hike will push that cost up to near $10,000,” he said

“The RBA has been crystal clear that its top priority is to tamp down inflation. After six hikes, inflation is at a 30-year high. More rate rises are likely on the way.”

According to the study, almost three quarters of Australians (70%) said they could not afford their mortgage repayments if there was another rate hike before Christmas.

Cooke stressed that rapidly increasing interest rates would have dire consequences for Aussie households and that refinancing remained one of the options for those finding themselves in a difficult situation.

“Remember it’s not too late to find a better home loan deal. The best rates on the market now start with a ‘4’ rather than a ‘1’. Refinancing can dramatically lower your costs – mortgage holders could save thousands of dollars a year.”

At the same time, the majority of panellists predicted a price drop for houses across all capital cities, with house prices tipped to drop up to $175,000 in capital cities.

Sydney was projected to suffer the biggest drop of 13.4% from its peak, a loss of $174,200 off the median property, while Melbourne was expected to suffer from a 12.9% drop for a loss of $116,100 in value.

Cooke said the panel’s predictions for house price drops in Sydney were actually optimistic.

“We’ve already seen more than 10% wiped from housing values in some areas since the peak, and the cash rate will just keep climbing. It’s a worse-case scenario, but price falls of up to 25% would not be unrealistic.”

Houses in Hobart and Canberra were tipped to lose 9.8% and 9.5%, while the other capital cities are looking at drops between 9% and 9.4%.