A divided RBA delivers a fifth hike this year as broker bodies urge borrowers to review home loans
The mortgage broking industry has moved quickly to urge borrowers to review their home loans after the The Reserve Bank of Australia (RBA) Monetary Policy Board voted 6-3 to lift the cash rate by 25 basis points to 4.85% this Tuesday.
The fifth increase this year could add approximately $119 a month to repayments on a $731,000 mortgage (which is the equivalent to the national average new owner occupier loan) if lenders pass it on in full, according to the Mortgage & Finance Association of Australia (MFAA).
The move took the cash rate to the highest cash rate in 18 years and, as CreditorWatch chief economist Ivan Colhoun noted, “a level last seen briefly during the GFC”, just before Governor Stevens lowered interest rates dramatically in late 2008.
The increase was widely expected after warnings that inflation remained too high.
“That very high CPI print has meant the return of inflation to target has been further delayed by 6 months – and without today’s tightening an even further delay would have occurred and inflation would not have dipped into the top of the band late next year,” Colhoun said.
The split vote marks a shift from September, when the board voted unanimously to push the cash rate to 4.6%.
Loan Market chief executive Sam White (pictured, centre right) said the decision “wasn’t a huge surprise” given the latest inflation figures. “Cash rate increases are the medicine you don’t want to take, but the sooner the market finds the bottom, the sooner we can get stability back."
White warned that households were running out of room to absorb higher costs, already being felt in house prices. “With less fat to cut back on, people are getting closer to the straw that breaks the camel’s back, which could force tough decisions. That’s where brokers play a pivotal role – providing clear paths to the options available to weather the storm,” he said.
Reacting to the latest rate hike, Labor treasurer Jim Chalmers said: "Today’s decision was widely expected, but that doesn’t make it any easier for Australian families and businesses to absorb. It will be difficult news for many Australians who are already paying a hefty price for circumstances outside of their control."
Chalmers warned that the ongoing war in the Middle East, now in its ninth month and showing little sign of abating, is adding to inflationary pressures. "It’s weighing on growth and its end can’t come soon enough for the global economy or for Australians facing cost of living pressures," he said.
How much more will borrowers pay?
| State or territory | Average new owner-occupier loan | Additional monthly repayment |
|---|---|---|
| NSW | $842,000 | $138 |
| Victoria | $664,000 | $109 |
| Queensland | $751,000 | $123 |
| South Australia | $672,000 | $110 |
| Western Australia | $720,000 | $118 |
| ACT | $666,000 | $109 |
| Northern Territory | $545,000 | $89 |
| Tasmania | $516,000 | $84 |
| Australia | $731,000 | $119 |
Source: Mortgage & Finance Association of Australia (MFAA), using ABS average new owner-occupier loan sizes for the June quarter. Figures assume 30-year principal and interest repayments, a rate rising from 6.24% to 6.49%, and full lender pass-through
What the RBA’s new forecasts show
The RBA’s updated forecasts point to a period of slower growth, which the bank believes is needed to bring inflation back to target. According to Colhoun’s reading of the forecasts:
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Growth for 2027 has been revised down from 1.6% to 1.3%
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Unemployment is forecast to reach 5% and then 5.1% in 2028
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Core inflation now returns to target in the first half of 2028, six months later than previously forecast, and stays at 2.9% or above throughout 2027
Colhoun questioned the starting point for the unemployment forecasts, which come after a run of rising unemployment readings.
“I remain sceptical of the ABS’s latest reported unemployment rate estimates, which the RBA has had to use as the starting point for these forecasts and expect some retracement (decline) in coming months,” he said.
High core inflation forecasts suggest the RBA may have further work to do, although not everyone expects it to move quickly. Colhoun expects the board to keep the cash rate on hold at least until February, and probably longer, while it assesses the impact of five hikes in a year. “It’s worth remembering the RBA always sounds hawkish when it tightens and dovish when it eases,” he said.
Brokers step up as repayments climb
MFAA chief executive Anja Pannek (pictured, centre left) stressed that borrowers had support available in an increasingly complex lending environment.
“Every household will experience this decision differently. A positive step borrowers can take today is to understand what it means for their repayments, their budget and their plans,” Pannek said.
“For existing homeowners, a broker can explore a more competitive rate with their current lender or assess whether refinancing makes financial sense.
“Where refinancing is not suitable or available, that conversation still has value. A broker can help clients understand their position and, where repayment assistance is needed, engage with their lender early.”
Mortgage Choice chief executive Anthony Waldron (pictured, right) agreed today's hike was "disappointing news" for mortgage holders, albeit unsurprising. "“If you’re looking to purchase a new property, I’d recommend chatting to a mortgage broker so they can help you put your best foot forward in a difficult economic landscape," he said.
Finance Brokers Association of Australia (FBAA) chief executive Leo Gagic (pictured, left) warned the decision represents yet another unwanted squeeze on stretched household budgets. “But we also need to recognise the pressure this places on brokers and their businesses. Navigating changing lender policies, tighter serviceability requirements, reduced borrowing capacity, and increasingly cautious consumers requires resilience, adaptability and strong business foundations,” Gagic said.
