Australians buying a home face paying seven per cent interest on their record high mortgages after five rate increases – with more to come
- The RBA increased the cash rate for the fifth consecutive month in September
- The four big banks are passing on the full interest rate hike to customers
- The hike pushes standard variable rates for interest only loans above 7 per cent
Australians trying to a home face the prospect of repaying massive mortgages with more than seven per cent interest after five rate rises in as many months.
The Reserve Bank announced the last 50 basis points hike on September 6, pushing the official cash rate to 2.35 per cent.
Three of the big four Australian banks to passed on the increase in full and the fourth, Westpac, will raise rates from Tuesday.
Standard variable rates for interest only home loans have been pushed up beyond 7 per cent after the RBA’s latest cash rate hike (stock image)
The latest hike pushed each of the four big bank’s standard variable interest rates for interest-only loans above seven per cent.
The interest-only mortgages are those in which holders don’t pay down the base amount for a set period and only pay off the interest.
The standard variable rate, also called a reference rate, is a benchmark to which home loan products are linked.
Most banks apply discounts to the benchmark for their retail loan products, so borrowers are on much lower interest rates.
But there is one major exception – fixed interest loans will usually revert to the benchmark rate when the fixed period is up.
‘The reality is most customers don’t pay the standard variable rate, or even the discounted variable rate,’ Sally Tindall, researcher director at RateCity told Daily Mail Australia.
RateCity research director Sally Tindall (pictured) said owner-occupiers should haggle for a better home loan rate
‘We expect at least a dozen lenders will still be offering variable rates under four per cent once this hike filters through, but only for new customers.
‘Based on RBA data, we estimate after the September rate hikes take effect, the average existing variable owner-occupier will be paying a rate over five per cent.
‘If you’re an owner-occupier and your rate starts with a five or even worse a six, then do something about it. Haggle with your bank for a better deal or refinance to a lender willing to charge you less.’
STANDARD VARIABLE INTEREST RATES FOR THE MAJOR BANKS
Standard variable rate 6.1 per cent; Interest only 7.29 per cent
Standard variable rate 6.77 per cent; Interest only 7.24 per cent
Standard variable rate 6.83 per cent; Interest only 7.42 per cent
Standard variable rate 6.64 per cent; Interest only 7.19 per cent
Standard variable rate 6.83 per cent; Interest only 7.30 per cent
Standard variable rate 6.96 per cent; Interest only 7.26 per cent
Standard rates are used as a benchmark and actual home loan products are usually cheaper
The RBA came under scrutiny last week when governor Philip Lowe and senior staff were grilled by a parliamentary committee about its aggressive rate hiking strategy.
Dr Lowe said the board would likely be choosing between a 25 and 50 basis point increase at the next rate decision in October.
RBA officials will also deliver speeches this week, with head of domestic markets Jonathan Kearns speaking at the AFR’s Property Summit on Monday and deputy governor Michele Bullock at a Bloomberg event on Wednesday.
The RBA’s interest rate hike cycle was designed to put downward pressure on inflation and the property market bubble (file image)