Westpac and NAB expect Reserve Bank of Australia interest rate hike in June, followed by others

Australians paying off a typical home loan could owe an extra $616 a month on their mortgage within a year as interest rates climb for the first time in a decade.

Westpac, Australia’s second-largest bank, has updated its forecast for the Reserve Bank to raise interest rates in June, instead of August as previously forecast, in what would be the first hike since November 2010 .

The big four banks Commonwealth, Westpac, NAB and ANZ are now all warning of borrower woes mid-year, with more to come in 2023.

A surge in inflation worries the Reserve Bank, which this week abandoned its “patient” approach to monetary policy tightening.

Westpac plans five rate hikes in 2022 that would increase typical mortgage payments by $363 by Christmas, followed by three more hikes next year that would add $616 per month to existing servicing costs by mid-2023.

Australians who are paying down a typical house are now being asked to pay an extra $616 a month on their mortgage within a year (pictured is an auction last year in Paddington in Sydney’s central east)

Westpac’s new interest rate forecast

2022: Reserve Bank of Australia interest rate increases in June, July, August, October and November

That would take the cash rate to 1.25% for the first time since July 2019

The popular variable rate would drop from 2.29% to 3.44 – adding $363 to typical monthly repayments

2023: More hikes in February, May and June bringing the cash rate to 2% for the first time since May 2016

The variable rate would increase to 4.19%, which would add $616 to existing monthly repayments

Reserve Bank of Australia Governor Philip Lowe stressed on Tuesday that rising petrol prices “will cause inflation to rise further over the coming quarters.”

“Inflation has accelerated and a further increase is expected,” he said.

Westpac chief economist Bill Evans predicted on Thursday that the RBA would raise rates in June, from a record high of 0.1%, and raise them five times in 2022, taking the cash rate to 1.25% for the first time since July 2019.

He said rates would likely rise again in 2023, taking the cash rate to 2% for the first time since May 2016.

“The Reserve Bank Governor surprised us on Tuesday with the board’s decision to abandon its patient approach to monetary policy,” Evans said.

If Westpac’s prediction came true, a borrower with a 20% mortgage deposit buying an Australian home at the median price of $738,975, based on CoreLogic data, would start paying $363 more per month in refunds on Melbourne Cup day in November.

Under an existing variable rate of 2.29%, this borrower with a A $591,180 mortgage would now pay $2,272 per month.

If this 1.15 percentage point increase in the RBA were fully passed on, an increase in floating rates to 3.44% would cause monthly repayments to rise to $2,635.

Westpac, Australia's second largest bank, has updated its forecast for the Reserve Bank to raise interest rates in June, instead of August as previously forecast (pictured is a Sydney bank branch )

Westpac, Australia’s second largest bank, has updated its forecast for the Reserve Bank to raise interest rates in June, instead of August as previously forecast (pictured is a Sydney bank branch )

The big banks all have tips from June

COMMONWEALTH: Reserve Bank rate hikes to start in June. The cash rate will reach 1.25% by February 2023

WESTPAC: increases from June. The cash rate will reach 2% by June 2023

NAB: first move in June. The spot rate will reach 2.25% by August 2024

ANZ: hikes from June. The cash rate will reach 2% by November 2023 and peak above 3%, but not before 2023

Source: RateCity

Further rate increases in 2023 would add 1.9 percentage points to the existing cash rate and, if fully passed on, would bring floating rates to 4.19% and monthly repayments to $2,888, an increase of $616 compared to now.

Earlier this year, Westpac asked the Reserve Bank to raise rates in August, October and December.

But now he predicts a rate hike in June, July, August, October and November, followed by more pain in February, May and June 2023, taking the spot rate to 2%.

Westpac updated its forecast on Thursday as it increased its fixed-rate mortgages for the fifth time this year, ending the era of products with rates below 3%.

RateCity research director Sally Tindall said Westpac was the first major bank to no longer offer a fixed rate mortgage with a two in front.

“Less than five months ago, Westpac still had fixed rates starting with a ‘1’,” she said.

“Today, the bank’s lowest fixed rates now start with a ‘three’.

“CBA, NAB and ANZ still offer one-year fixed rates below 3%, but it’s hard to see them lasting long.”

Ms Tindall said borrowers needed to cut spending and save without delay.

“People who think they might struggle to make higher refunds shouldn’t wait until June to see if the RBA makes up its mind,” she said.

“Now is the time to batten down the hatches and build a buffer.”

Westpac Chief Economist Bill Evans said rates were likely to rise again in 2023, taking the spot rate to 2% for the first time since May 2016 (pictured is a <a class=Sydney home that s is recently sold)” class=”blkBorder img-share” style=”max-width:100%” />

Westpac Chief Economist Bill Evans said rates were likely to rise again in 2023, taking the spot rate to 2% for the first time since May 2016 (pictured is a Sydney home that s is recently sold)

National Australia Bank also updated its forecast on Thursday that the RBA would hike rates in June, followed by three more hikes in July, August and November.

This would take the cash rate to 1% for the first time since July 2019.

NAB predicted five more rate hikes in 2023 and 2024 that would take the cash rate to 2.25% for the first time since May 2015.

Australia’s headline inflation rate rose to 3.5% last year, well above the Reserve Bank’s 2-3% target.

But Treasury budget documents predict the consumer price index will climb to 4.25% by June 2022, which would be the highest since September 2008.

Average gasoline prices have risen more than $2 a liter since the federal government halved the excise duty on fuel to 22.1 ca liter for six months on March 30.

Still, there could be good news for workers, with Westpac predicting wage growth of 4% by mid-2023, well above last year’s 2.3%.

Wage growth has been stuck below the long-term average of 3% since mid-2013.

On Tuesday, Reserve Bank of Australia Governor Philip Lowe pointed out that rising petrol prices

On Tuesday, Reserve Bank of Australia Governor Philip Lowe stressed that rising petrol prices “will cause inflation to rise further over the coming quarters.” Big banks noted he had abandoned his ‘patient’ approach to raising interest rates

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