The Reserve Bank of Australia hiked interest rates again this month, taking the OCR to 2.85% – a move that has pushed some mortgage borrowers to their “stress test” limits.
The latest rate hike was the seventh straight RBA increase since May, pushing the OCR to its highest level since April 2013. This also means many borrowers are now at the limit of what they can afford to pay, with some moving beyond their “stress test” buffer.
Economist Angela Jackson said the current cash rate has now risen by more than the 2% rate hike RBA’s own forecasts have previously shown would drag 10% to 20% of all households into mortgage stress, ABC reported.
“That's a significant number of households in debt stress,” Jackson said.
The latest 0.25% rate hike meant a borrower with a $500,000 mortgage with 25 years remaining on the loan would see their monthly repayments rise by a further $74 a month – that’s a total $760 increase since the rate hikes began in May.
For a $750,000 loan, that would be an extra $112 in repayment per month, totalling to slightly more than $1,000 since May.
Jackson said a huge concern for many borrowers was moving into negative equity. That’s when the value of a home falls below its loan amount, which can lead to forced sales to allow the bank to recover their loss.
“We know a lot of borrowers are in significant financial stress,” Jackson said.
This wasn’t the first time rates rose this aggressively. The last time it happened was in 1994, when the central bank raised rates from 4.75% to 7.5% – a 2.75% lift over five months, ABC reported.
