Australian homeowners are bracing for a significant financial hit as the nation’s largest banks have moved swiftly to pass on the latest cash rate increase, sending mortgage repayments soaring for millions.
Commonwealth Bank, NAB, and ANZ today implemented the full 0.25 percentage point hike to their variable home loan customers, with Westpac set to follow suit next Tuesday.
This widespread increase means the average owner-occupier variable rate is now poised to breach the 6 per cent mark, settling at an eye-watering 6.01 per cent once all lenders adjust their pricing.
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The days of ‘5’ in front of a variable rate are rapidly disappearing for many, with NAB and ANZ’s lowest variable offerings now firmly in the sixes.
While Westpac will temporarily hold the line with the lowest advertised variable rate among the majors at 5.74 per cent, the overall trend is clear: borrowing money is becoming significantly more expensive.
The squeeze isn’t limited to variable loans
Both Commonwealth Bank and NAB have also hiked their fixed rates, with increases of up to 0.30 and 0.35 percentage points respectively.
This shift has pushed NAB’s fixed rate offerings entirely out of the ‘5’ range.
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Source: Canstar.com.au
Westpac currently presents the most competitive fixed rate among the big four at 5.79 per cent for a one-year term, but market analysts warn that even these rates are volatile and could climb further in the coming days.
Canstar.com.au’s analysis reveals a dramatic contraction in competitive fixed rate options.
A mere month ago, over 20 lenders offered fixed rates below 5.50 per cent; today, that number has dwindled to just two, with The Mac providing the lowest at 5.49 per cent for a two-year term.
The average lowest available two-year fixed rate now stands at a formidable 6 per cent, underscoring the rapid deterioration of the fixed rate market.
Rates rise from today but mortgage repayments will stay put for few weeks
While the rate increases are effective immediately for many, there’s a crucial delay before the higher repayments actually leave borrowers’ accounts.
The big four banks typically provide 20 to 30 days’ notice before new repayment amounts are due.
This lag, however, could create a dangerous illusion of stability, according to Canstar.com.au’s data insights director Sally Tindall.
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Source: Canstar.com.au
“Variable borrowers across the country are now having to brace for the second cash rate hike in as many months, while staring down the barrel of a potential third hike as soon as May,” she warns.
“Make no mistake, banks are starting to charge customers higher rates from today, but be aware there’s a significant delay between today and when that extra money comes out of your bank account, for those paying the minimum.”
Ms Tindall cautions that some homeowners might mistakenly believe they have absorbed the impact of recent hikes, when in reality, they may not have even begun paying for the first one.
She urges owner-occupiers to proactively scrutinise their mortgage rates, stating, “If your rate starts with a 6, you’re still paying a loyalty tax to your bank.”
She advises targeting rates below 5.75 per cent.
What if you can’t meet the new repayment amount?
For those anticipating difficulty meeting the new repayment amounts, Ms Tindall stresses the importance of immediate action.
Borrowers should first request a rate review from their current bank.
If a reduction is secured, it’s vital to confirm the new minimum monthly repayment.
Should this still prove unaffordable, contacting the bank before missing a repayment is paramount to explore available options.
Banks are mandated to offer support, which could include temporary interest-only periods, reduced payments, or extending the loan term.
Source: Canstar.com.au
However, these solutions can incur significant long-term costs, making independent financial advice, such as that offered free by the National Debt Helpline, an essential first step.
The outlook remains challenging, with all four major bank economists forecasting yet another 0.25 percentage point hike in May.
“There’s almost certainly more pain ahead for borrowers,” Ms Tindall concludes.
“If you’ve got a mortgage, work out what your repayments might look like if rates rose not just in May but again later in the year.
“You want to make sure this figure fits in your budget alongside the other rising cost-of-living pressures.”
For those contemplating fixing their rates, the window for competitive offers is rapidly closing, demanding prompt and thorough research.
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