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Rents and mortgage repayments to keep rising

Rents and mortgage repayments are expected to continue to rise over the next 12 months, putting more pressure on households already struggling with the high cost of living.

A new survey from Finder found 53 per cent of experts tipped rents would increase 9 per cent or more over the next 12 months and the Reserve Bank of Australia would lift the official cash rate to 2.5 per cent.

If the cash rate increased that much the average household would see repayments jump $8,592 per year on a $600,000 home loan.

Head of consumer research at Finder, Graham Cooke said Australians were already feeling the pinch with 86 per cent of experts predicting a cash rate rise on June 7.

“Many homeowners are going to struggle to meet these new payment requirements,” Mr Cooke said.

“The economy is at a precipice and some families are really starting to struggle financially with the cost of living – and for those with a home loan, it could get a lot worse.

“Lifting the cash rate is good news for savers, and will help to slow Australia’s runaway property market, but those with a home loan are in line for several further cost increases.”

According to the survey, 39 per cent of experts expect the cash rate will peak at 2.50 per cent or above with 71 per cent saying a peak will happen in 2023.

Mr Cooke said while there was a chance of a 40 basis point increase at the June meeting, gradual increases were more probable.

Dr Andrew Wilson from My Housing Market said falling income levels and a slowing economy could impact the RBA’s trajectory.

“Recessionary clouds are already gathering in other advanced economies that increased rates higher and earlier than Australia,” Dr Wilson said.

“Falling disposable income levels and a moderate GDP performance will be food for thought for the RBA who are hoping to avoid a hard landing in its attempt to curb inflation.”

Rising rents

CoreLogic data showed median weekly rents increased 9 per cent over the past 12 months with over half of experts surveyed forecasting similar or even higher growth this year.

According to Finder’s Consumer Sentiment Tracker, 35 per cent of Australian renters struggled to pay their rent in May.

Mr Cooke said myriad of factors, including record low rental vacancy rates, had driven up costs.

“Rental costs were driven down last year due to lockdowns, but are quickly bouncing back,” he said.

“On top of that, construction costs are continuing to soar, and rental vacancies reached record low levels in May.

“The corresponding spike in rental costs is leaving tenants with very little money leftover for necessities.”

Michael Yardney, of Metropole Property Strategists, said renters were doing it tough.

“We are in a rental crisis with vacancy rates at record lows, a shortage of rental properties as many investors have sold up over the last year or two, and there is very little new investment stock coming onto the market,” Mr Yardney said.

However, economist Jakob M Madsen, from the University of Western Australia, said the rental crisis would subside over the coming year.

“House prices and therefore rents will decrease in the next months due to the increasing cash rate,” Mr Madsen said.

Tim Reardon from Housing Industry Association also tipped rents would not rise as much as they did in the past 12 months.

“The influx of new housing completions will moderate the rate of increase this year. There is also a return to higher density living underway,” Mr Readon said.

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.

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