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The Reserve Bank’s latest interest rate hike today could be one of its last

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Struggling homeowners have copped yet another interest rate hike, but the end of the Reserve Bank’s painful tightening cycle could now be in sight.

At its February board meeting today, the RBA lifted the official cash rate by 25 basis points to 3.35% – its highest level since September 2012.

While the news will come as a blow to mortgage holders battling nine consecutive increases, PropTrack director of economic research Cameron Kusher said the RBA had little choice.

“Despite signs of a marginal easing in inflationary pressures, with the highest rate of inflation recorded in decades it was a pretty easy decision for the RBA to continue to increase interest rates this month,” Mr Kusher said.

December quarter inflation data showed a slower than expected 1.9% increase quarter-on-quarter, but the annual measure was up a whopping 7.8%.

“It would be difficult for the RBA to maintain credibility as an inflation-fighting Central Bank had they not continued to lift rates this month,” Mr Kusher said.

There are some signs the RBA is nearing the end of its aggressive tightening policy. Picture: Getty

But there could be some relief in sight, with signs that inflation might have peaked, and pressures will ease from here, he said.

“We’re already seeing a slowdown in growth in producer prices,” he said.

“Retail trade has shown early signs that it may have started to stall, while home prices continue to fall and demand for housing finance is continuing to slump.”

Mr Kusher believes one more interest rate rise of 25 basis points is likely this year, bringing the cash rate to 3.6%, at which point the RBA will sit tight.

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However, a raft of economic data is due to come in before the board meets next in early March.

“Should the slowing continue and if economic growth comes in lower than expected, this might be the last of the hikes,” Mr Kusher said.

“Either way it appears we are nearing the end of the rate-hiking cycle.”

How much more borrowers will pay

Nine back-to-back rate hikes have put significant financial pressure on borrowers, Mortgage Choice chief executive Anthony Waldron said.

There’s little doubt that most lenders will be quick to pass on today’s rate hike in full.

“If you haven’t asked your mortgage broker to review your mortgage in the past 12 months, now is a great time to chat to an expert and start your year off on the right foot,” Mr Waldron said.

“I encourage all borrowers to take control of their home loans and be proactive about getting a better deal.”

For borrowers with $500,000 outstanding on their home loan, the February hike could add an additional $80 to their monthly mortgage repayments.

Those with a mortgage balance of $750,000 will pay an extra $121 a month after today’s increase, while those with a $1 million loan balance will cough up an extra $161 per month.

Skyrocketing mortgage costs make it worth shopping around for a better deal. Picture: Getty

But of course, the cash rate has already risen eight times before today.

Since May 2021, Aussies with a $500,000 mortgage could see the combined cost of the rate hikes total more than $960 per month – a staggering $11,556 more a year.

And for a borrower with $1 million outstanding on their home loan, the combined cost blows out to more than $1900 extra each month.

Full impact of nine rate rises

Note: In these calculations, the borrower is assumed to be an owner-occupier paying principal and interest with 30 years remaining on their loan. It assumes an initial average variable interest rate of 2.86%, according to April RBA figures. It assumes each rate hike is passed on in full. The calculation does not factor in loan fees and charges, or any principal paid down over time.
Mortgage size Additional monthly repayments Additional annual repayments
$500,000 $963 $11,556
$750,000 $1445 $17,340
$1,000,000 $1926 $23,112

What the RBA governor said

While the cost of interest rate hikes has been steep for many, RBA governor Philip Lowe said winning the war against inflation is worth the pain.

“High inflation makes life difficult for people and damages the functioning of the economy,” Mr Lowe said in a statement.

“And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later.

“The Board is seeking to return inflation to the 2% to 3% range while keeping the economy on an even keel, but the path to achieving a soft landing remains a narrow one.”

Mr Lowe warned further rate rises could be needed in the months ahead to ensure inflation cools.

“In assessing how much further interest rates need to increase, the board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market.”

Impact on home prices

Soaring interest rates have seen mortgage costs skyrocket and borrowing power plummet, with housing markets across the country impacted as a result.

The latest PropTrack Home Price Index shows values nationally slipped 0.09% in January and are now 4.51% below their peak.

Some cities have been harder hit than others, with Sydney – the country’s most expensive market – seeing home prices fall 7.51% from their peak in February 2022.

Rapid interest rate hikes have put pressure on housing markets. Picture: Getty

PropTrack senior economist Eleanor Creagh, who authored the report, said the RBA’s aggressive approach to rates was largely to blame.

“However, the worst of the downturn appears to have passed,” Ms Creagh said.

“The rapid pace of price falls seen in June and July 2022 when interest rates first started rising have subsided and price falls have eased in recent months.”

And while prices nationally have dropped 4.51% from their peak, they remain a staggering 28.5% higher than they were pre-Covid.

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