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Stephen Capello recently spoke with the Kylie and Kev 1494 2AY show about the Reserve Bank of Australia’s (RBA) decision to increase the cash rate by 0.25 per cent, which brought the official cash rate up to 2.85 per cent.
He commented that the majority of economists were expecting a 0.25 per cent rise in the cash rate much like the October rate hike.
Mr Capello stated that the rate increases will “undoubtedly harm householders and home owners with mortgages”, depending on the borrowed amount.
“For example, if you have a $500,000 mortgage and that .25 per cent passed on full it would add around $74 a month,” Mr Capello said.
“When added up collectively since the rate rises began in May, it comes to an additional $760 per month and with wages not keeping pace, those with mortgages must scramble to find the necessary funds.”
He added that with rising energy costs, mortgage holders are finding themselves reviewing sums and may find that “non-discretionary items” will rise even further, which in turn will make it difficult for home owners to “avoid paying more for fuel and food”.
Mr Capello further said that recent surveys have indicated that most economists are expecting things to get worse this time next year.
When asked about whether to expect rises in the cash rate month-to-month, the CEO stated that there is uncertainty heading into December and in the next year.
Mr Capello attributed this to the fact that there’s “no indication that this is going to be the last rate rise this year”, and that most banks are expecting the cash rate to rise to 3.5 per cent by mid-2023, along with a quarter to half a per cent rate rise in December 2022.
Borrowers facing uncertainty
CoreLogic has recently flagged that some mortgagors who took out loans before October 2021 wouldn’t service their loan buffer now, warning that many face “uncharted waters”.
Director Tim Lawless explained that most banks had typically used a 2.5 percentage point buffer when servicing loans before this time, however, due to the official cash rate rising over the last year, many borrowers would no longer qualify for their loans.
Mr Lawless explained at the time: “The cumulative 2.75 percentage point rise through the tightening cycle (since May) takes home loan rates above the 2.5 per cent serviceability buffer that was used before October 2021 and close to the current 3 percentage point serviceability buffer.
“November’s rate hike may leave some recent borrowers approaching uncharted waters with regards to their ability to service their loan; a situation made harder due to persistently high cost of living pressures that were unlikely to be factors at the time of origination.”
[RELATED: Borrowers facing ‘uncharted waters’, warns CoreLogic]
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