How high could rates go? The latest predictions from the big banks

Australians with the largest mortgages will be reeling as the big four banks each announce a rate hike of 0.5 per cent per annum this month.

Chief executive of Domain Home Loans Kareene Koh says: “Since April 2022, monthly mortgage repayments on a $1 million mortgage have gone up by over $1300 per month. 

“Whilst we are not seeing the full effect of this yet, this is starting to put pressure on households as they are keeping up with rising repayments whilst also absorbing cost-of-living changes.”

The million-dollar question is: will rates continue to rise?

Mortgage-holders have already copped five consecutive rate rises.

Reserve Bank of Australia governor Philip Lowe says the board would consider either a 25 basis point rise or a fifth 50 basis point increase at the October meeting.

“I know that higher interest rates are unwelcome for many people, especially those who have borrowed large sums over recent years. Higher interest rates are putting pressure on households, just at the time that higher petrol prices and grocery bills are squeezing budgets,” Lowe told the committee.

But in an effort to get inflation under control, Lowe conceded that the move was necessary. 

“Since May, the cash rate has been increased by a cumulative 2.25 percentage points and now stands at 2.35 per cent,” Lowe said.

His announcement prompted some banks to revise their forecasts. 

NAB’s monetary policy update predicts a fifth consecutive 50-basis points rate increase in October (previously 25 bps) and 25 bp rise in November, taking the cash rate to 3.10 per cent.

NAB expects the RBA to pause the hiking cycle after November to assess the impact of rate hikes over 2022.

“How consumption holds up as the recent interest rate rises begin to flow through to mortgage payments remains a key source of uncertainty with risks in either direction for growth and for interest rates,” NAB group chief economist Alan Oster says.

ANZ is also predicting the RBA to announce another 50 basis points in October, followed by 25 basis points in November and December.

ANZ economists believe the cash rate will increase to 3.35 per cent by November to address inflation.

ANZ head of Australian economics David Plank says there is a growing risk that the RBA tightening cycle will extend into 2023. 

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“The RBA may find it has little choice but to push policy into very restrictive territory,” he says.

Westpac lifted its rate forecast to 4.125 per cent and confirmed its forecast of a peak in the RBA cash rate of 3.35 per cent, which is higher than most analysts.

Meanwhile, Commonwealth Bank is forecasting 25-basis-point increases in interest rates in October and November before the RBA looks to cut rates by 50 basis points in the second half of 2023.

It’s going to spell mortgage woes for some home owners, and customers are encouraged to reach out if they are struggling with repayments.

Domain’s Koh says that 35 per cent of borrowers are currently on fixed-rate mortgages that will progressively expire over the next 12 to 18 months. 

“As this transition happens, we will see a higher proportion of households that will be absorbing a significant step up in mortgage repayments from what they were on before,” Koh says.