Australians should prepare for more rise in interest rates in 2023. Higher inflation is putting pressure on the budgets of most households. The RBA has been raising the cash rate in response to rising inflation which currently sits at 7.8%. With rising interest rates, consumer confidence is falling, and housing prices have been declining. In a recent CoreLogic report, half of the country’s house and unit suburb markets saw a fall in value in 2022.
The RBA raised the cash rate by 25 basis points in May and by 50 basis points or .50% for 4 consecutive months from June to September. This was followed by 25 basis points or .25% increases In October and November. From a cash rate of .10% in April, the cash rate is now at 2.85% in November 2022. Homeowners with mortgages are now concerned about how high the interest rates will rise in 2023.
Australians have jobs, that’s the good news. The unemployment rate in Australia at 3.5% is at its lowest in so many years. People are finding jobs, gaining more hours of work, and receiving higher wages. The unemployment rate is expected to move higher through 2023 and reach 4.5% in the second half of 2024, according to NAB economist Alan Oster.
On a positive note, the economy has remained very resilient despite high inflation and a rapid increase in interest rates. Many households have also built up large financial buffers and the saving rate remains higher than it was before the pandemic.”
On GDP, growth is expected to slow down to below 1.0% over the next two years. This includes some very soft quarterly growth in the back end of 2023 and is well below trend growth of around 2.25-2.5%.
Here are what the Big Four banks are saying:
Westpac predicts rates could go as high as 3.85 per cent by March 2023, while ANZ forecasts the cash rate will take a little longer to peak at that level in May.
NAB’s forecast is a little more conservative. It expects the interest rate to hit 3.6 per cent by March 2023, which would push the average variable rate to 6.48 per cent.
For an average $1 million home loan, that equates to an extra $2,100 a month compared to earlier this year when the official cash rate was at a historic low of 0.1 per cent.
CBA expects interest rates to hit 3.10 per cent by the end of the year and remain steady for the first half of 2023.
This follows seven consecutive months of interest rate rises aimed at curbing soaring inflation, which currently sits at 7.3 per cent. This is Australia’s highest inflation rate since 1990.
How to navigate a higher-rate environment?
1. Talk to your mortgage broker or your bank
Negotiate for a better rate with your existing bank. With so much at stake, leaning on a professional to help guide you through the process can really pay off. Speaking with a broker about which loans will suit your needs could not only lead to a good financial outcome but can also provide valuable peace of mind.
2. You can refinance your home loan.
If your bank keeps increasing your interest rate and there are rates out there that are lower than the rate you are on, consider refinancing your home loan. All banks are competing for your business and are offering very competitive rates and cashbacks ranging from $2,000 to $6,000 to get new customers.
While refinancing to secure a more competitive rate might seem like an obvious step to take, you shouldn’t rush into making this decision. That’s because there’s a lot to consider.
- Does a loan with a lower rate provide you with the same features?
- Will the new loan suit your needs over the long term?
3. Prioritise paying off the high-interest debts
Review all your ongoing liabilities i.e. credit card, car loan and personal loan. Are you paying your credit card bills in full or in monthly installments? If you have balances left on your credit card at the end of each month, try to pay down these balances as soon as you can. This will help improve your cashflow, leaving you with surplus funds to cover the rising cost of living.
Preparing for future rate hikes as early as now will put you in a better financial position for 2023 and the years to come.
This article is for general information only and should not be considered personal financial advice. Before making a financial decision, you should seek independent advice from a mortgage broker, financial planner or an accountant.
Maria Papa is a property and finance expert specialising in home loans, investment loans, self-employed loans, Lo Doc loans, car loans, personal loans and loan protection. She has offices in Sydney, Melbourne and Manila. If you have questions, you can call Maria at 0430 144 008 or email her at mpapa@maverickfinance.com.au
Disclaimer: Your full financial situation will need to be reviewed prior to acceptance of any offer or product.