Another close call expected for homeowners

An average borrower could soon be paying close to 50 per cent more on their home loan should the Reserve Bank decide to lift interest rates.

The central bank board will meet on Tuesday to discuss whether to lift the rate up to an 11-year high of 4.10 per cent.

Analysis by RateCity suggests a borrower with a $500,000 loan before the RBA began its aggressive tightening cycle in May last year could soon be paying a total of $1,134 more, or 49 per cent, a month.

A survey of economists by Finder showed just over a third of experts expect the RBA to increase the cash rate.

AMP chief economist Shane Oliver said the central bank’s “hawkish bias” combined with persistent inflation, the recent Fair Work Commission’s minimum wage case and the tight labour market could result in another hike.

“The likelihood is that it will raise rates further,” he said.

However, the big four banks have forecast rates to be left on hold at 3.85 per cent, which both Westpac and CBA say should mark the peak.

On Monday, Deutsche Bank bumped up its peak cash rate forecast to 4.6 per cent by September. Chief economist Phil O’Donoghue said the question was not if but when rates increased.

“Multiple rate hikes now look likely to be delivered before the end of this year,” he said.

Financial markets are tipping the chance of an increase at just under 40 per cent.

Monthly figures, released by the ABS last week, show the annual inflation rate jumped from 6.3 per cent to 6.8 per cent in April. The next set of quarterly data isn’t due until next month.

Appearing before a Senate estimates hearing last week, governor Philip Lowe said the battle against inflation was far from over.

“I will not declare victory until victory is achieved,” he said.

The RBA forecasts the inflation rate to return back to its target band of 2 to 3 per cent by mid-2025.

Last month, the bank shocked markets and homeowners with an unexpected increase in the cash rate, up 25 basis points to 3.85 per cent.

Dr Lowe acknowledged the pain caused by the increase but said it was better than the alternative.

“I know higher interest rates are unpopular; they’re hurting people, it’s very tough,” he said.

“Every single family is feeling those cost-of-living pressures, and that’s because over the past year, prices went up 7 per cent and we have got to stop that.

“I know what we’re doing is painful and it’s very difficult for many people, but it’s necessary.”

It comes amid fresh reports the level of mortgage stress has increased to its highest since August 2008.

Fresh research from Roy Morgan suggests over half a million more households are at risk after the past year of increases.