CBA, ANZ, NAB, Westpac: When will rates rise and by how much

The big four banks have released alarming forecasts for rate hikes, with borrowers expected to be hit multiple times this year.

Big banks have confirmed homeowners’ worst fears – they revised forecasts to announce significantly earlier higher interest rates after shocking increases in the cost of living were revealed earlier this week.

While the Reserve Bank of Australia’s (RBA) previous stance was to hold interest rates on hold through 2023, the data showed that the cost of living had hit a 22-year high, rising 5.1 percent year-on-March.

This has left the RBA with no choice but to raise interest rates several times this year, with the first hike expected for homeowners in 11 years, experts say.

Three major banks are forecasting a rate hike as early as next Tuesday.

ANZ, NAB and Westpac have both forecast a 0.15 percent rise in early May.

The Commonwealth Bank has also forecast a 0.15 percent hike, but for June, despite dire warnings that interest rates could hit 2.5 percent overall by the end of the year.

The reasons for May

ANZ’s forecast would see the current record low interest rate rise from 0.1 percent to 0.25 percent.

Another hike of 0.25 percent is also due in June, which the bank says would quickly take the interest rate to 0.5 percent.

“Inflationary pressures have gained momentum and widened. Against this background, a key interest rate target of 0.1 percent is inappropriate,” said the economics team at ANZ.

“We don’t think the RBA needs to wait for more pay data as its own liaison program suggests wage growth picked up further in the March quarter.”

ANZ economics chief David Plank added that the case for the first rate hike in June was “weak” and he expects the RBA to be forced next month to make its first rate hike in over a decade.

The NAB is forecasting a series of rate hikes, with the first session coming at 0.15 percent in May and a further 0.25 percent hike in June, July, August and November.

This would mean that interest rates would reach a whopping 1.25 percent by the end of the year.

The major bank said its cost-of-living data “beat” its expectations as well as the RBA’s latest February forecast.

“Temporary factors continue to play a role in stronger inflation results, but underlying inflation is likely to remain elevated into the second quarter, along with a further decline in the unemployment rate and stronger wage growth,” NAB analysts said.

Westpac chief economist Bill Evans originally believed the RBA would hold off on a May rate hike because the RBA had already signaled it wanted to see additional data before making a call, but on Friday he said they needed next move month.

It was estimating a 0.15 percent rise in May, followed by a 0.25 percent rise for the rest of the year.

He believes interest rates will hit 1.5 percent by the end of 2022 and the RBA will only hold off on more aggressive hikes because of high levels of household debt.

The calls for a June hike

CBA has taken a more conservative approach, forecasting a 0.15 percent hike in June, although Gareth Aird, head of the bank’s Australian economics department, believes the RBA should hike rates next week.

“When the RBA hikes interest rates at next week’s May board meeting, it will not have delivered on what it said just last week – that the board agreed it would use evidence on both inflation and wage bill developments as such establishes the policy,” Mr Aird said.

The major bank is also forecasting an increase of 0.25 percent for June and July.

But some economists have cracked down even harder than the big banks, with forecasts that the interest rate could rise to 2.5 percent by the end of the year.

At that rate, the average homeowner could pay an additional $1,000 a month on their mortgage if forecasts for a 2.5 percent rate hike are correct.

For borrowers with an $800,000 mortgage, that would mean an additional $1100 per month in repayments and $1298 per month for a $1 million mortgage.

On the smaller side, that would add $779 to monthly repayments on a $600,000 loan.

For 2023, an interest rate increase to 3.4 percent by the middle of the year is forecast.

Serious financial stress

It comes as nearly two-thirds of Australian borrowers believe they will face “serious financial stress” if the interest rate on their home loan rises to 5 per cent, comparison website Mozo’s latest study of what could happen with variable rates has found.

Considering the current average variable interest rate of 3.03 percent and the increases projected by some of the big banks, that would send interest rates skyrocketing to nearly 5 percent, according to Mozo.

His research also showed that more than half of borrowers have not stress-tested their ability to make monthly mortgage payments at a higher interest rate, while 8 percent believe any rate hike would cause them serious financial difficulties.

“With the last cash interest rate increase over 11 years ago, many borrowers have never experienced a rate hike on home loans, so it’s no wonder many people are concerned about the impact this could have on their finances,” said Mozo- Narrator Tom Godfrey.

“It’s never too late to stress test your ability to make repayments at higher interest rates. Something as simple as entering your home loan amount into a mortgage calculator to see what your repayments might look like if interest rates rise can help you plan your budget and reduce your stress.”

Mozo also found that 59 percent of homeowners fear losing their home’s equity due to falling home prices.

“Losing equity in your home could become a problem if you are forced to sell or refinance, but if you are able to persevere, continuing to repay your principal is one of the best hedges you can take ‘ said Lord Godfrey called.

The RBA has forecast that a 2 percent rate hike would lower house prices by an estimated 15 percent.

Currently, the best variable rate home loans in Mozo’s database are through online lenders, with Reduce Home Loans’ leading rate being 1.79 percent.

However, the big four banks are still offering adjustable-rate loans at an average of 2.14 percent, compared to three-year fixed-rate loans at more than 4 percent, RateCity said.

The database also showed 32 lenders that had at least one variable rate for owner-occupiers below 2 percent.

Once in a lifetime, houses go up in value

But chief mortgage broker Louisa Sanghera, founder of Zippy Financial, said many mortgage holders would be protected from rate hikes because of the huge rise in home prices.

“For some borrowers, this may be their first rate hike — but many of these homeowners have also seen one-time increases in the value of their homes or investment properties over the past year,” she said.

“This means that their total net worth has put them in a far better position than if they had never bought out of unrealistic fear of rate hikes, which are a normal part of monetary policy, let’s not forget that.”

She forecast a rate hike of 0.25 percent over many months.

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