RBA Rate Hike Hits Households Hard Amid Inflation Fears

The Reserve Bank of Australia (RBA) has raised the cash rate by another 0.25 percentage points to 4.6%, its highest level since 2011.

This increase, the fourth this year, is a response to stronger-than-expected inflation at home and higher global energy prices due to the conflict in the Middle East.

However, the pain of this rate hike will feel different for Australian households compared to 15 years ago. The average mortgage has doubled in size, making borrowers more sensitive to interest rate changes.

According to data from June 2011 and June this year, the average new owner-occupier home loan increased from A$363,000 to $731,000, while the average first-home buyer's loan rose from around $318,000 to about $610,000. Incomes have risen by around 60% over the same period, but nowhere near as quickly.

This means that even a small movement in interest rates can have a significant impact on household budgets, especially for recent borrowers who carry much larger mortgages and have had less time to build equity and savings buffers.