Homeowners should be prepared for a series of rate hikes with experts tipping the official cash rate could rise to 2.6 per cent.
This week, the Reserve Bank of Australia made the decision to increase the cash rate 25 basis points, the first hike in more than 10 years, in a bid to combat record-high inflation.
Reserve Bank Governor Philip Lowe said the cash rate could rise to 2.5 per cent, but did not outline the timeframe to get there.
RateCity.com.au Research Director Sally Tindall said she expected the RBA to remain hawkish in the next few years.
“The May cash rate hike is just a taste of what’s to come from the RBA,” Ms Tindall said.
“Whether you’re on a variable rate or a fixed loan that’s due to end, get ready to be paying a lot more.”
Ahead of the RBA decision, three of the big four banks brought forward their expectations for a rate rise and now all expect the cash rate to continue to climb substantially.
NAB is the most hawkish, predicting the OCR to hit 2.6 per cent by August 2024, while Westpac and ANZ predict a 2.25 per cent terminal rate in May 2023.
CBA has tipped a far less aggressive RBA, forecasting the cash rate to reach 1.6 per cent by February 2023.
If the RBA follows through and the cash rate reaches 2.6 per cent as predicted by NAB, someone with a $500,000 mortgage could see their monthly repayments rise $675.
For a homeowner with a $1 million mortgage repayments could increase $1,350 a month.
Ms Tindall said borrowers could find themselves under financial stress if the official cash rate continued to rise sharply.
“While most borrowers have decent buffers up their sleeves, for some people their rainy-day funds could shrink, and quickly, as the rate hikes continue,” she said.
“Some people, who think they’re going to scrape through, could suddenly find themselves in hot water in a blink of an eye.
“If you do, don’t panic. No matter what, do not put your head in the sand. Pick up the phone and tell your bank you may have trouble making your repayments.
“The national debt helpline is another good resource. They’re on 1800 007 007. They can put you in touch with a counsellor who can help you come up with practical ways to get on top of your repayments.”