The Reserve Bank of Australia is expected to raise interest rates for the eighth consecutive month, causing more headaches for mortgage holders.
The RBA’s board is scheduled to meet on Tuesday, when experts predict it will raise the cash rate again to try to curb Australia’s rising inflation.
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The ABS reported this week that the annual inflation rate to October was 6.9 per cent.
This is a marginal decrease from 7.3% in September, but is still considerably higher than the RBA’s target of between 2% and 3%.
Financial comparison site RateCity expects the council to make another 0.25 percentage point rise in interest rates.
If that happens, the cash rate will rise to 3.1%, the highest level since 2012.
What does the decision mean to you?
The big four banks are forecasting a 25 basis point increase in December.
If they’re right, the average borrower with a $500,000 loan will pay $834 more in monthly repayments than before the first hike in May.
“It’s like booking flights back to Bali every month but never leaving your living room,” said RateCity research director Sally Tindall.
That’s an increase of $75 per month over the current rate.
Tindall said, although unlikely, the banks could be wrong.
“The possibility of a pause has become a real option for the RBA this Tuesday based on these latest inflation figures,” he said.
“That said, the RBA is unlikely to take its foot off the accelerator completely next week.
“The board has repeatedly said it is prepared to do whatever it takes to control inflation – a fall does not mean ‘job done.’
Head of research at financial services firm CoreLogic, Tim Lawless, previously told 7NEWS.com.au that mortgage lenders are likely to pass on whatever interest rate the RBA announces.
“For anyone paying a mortgage, this shouldn’t come as a surprise, given that we’re now several months into a rate-hike cycle,” Lawless said.
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Will rates continue to rise?
The bad news is that a rise on Tuesday may not be the end.
The Commonwealth Bank alone predicts the maximum will be 3.1 per cent.
Westpac and ANZ expect a peak of 3.85% in May next year, while NAB expects a peak of 3.6% in March.
“The fastest rise in the cash rate since 1994 has seen property prices tumble as buyers’ borrowing capacity is destroyed with each RBA rise, spooking landlords and investors alike Tindall said.
August marked the steepest monthly drop in home values in nearly four decades, and the decline is now spreading beyond the big cities.
The monthly decline marks the fourth consecutive decline for the CoreLogic index as the fallout from interest rate hikes continues.
The national index fell 1.6 percent for the month, marking the biggest month-on-month decline since 1983.
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What can you do about it?
Some households have been able to take these increases in stride. But for others, it’s been tough.
Tindall urged families to find out how much their monthly payments will rise if the RBA continues to raise rates.
“If you think your budget is going to be in trouble in the coming months, don’t wait until the problem hits home — act now,” he said.
“Households that start making cuts now are likely to be in a much better position when rate rises really start to bite.”
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