RBA Rate Hike Looms as Mortgage Holders Face Crushing Debt Burden

The Reserve Bank of Australia (RBA) is set to announce its interest rate decision today, and financial markets are predicting a 0.25% increase in the official cash rate (OCR). This move comes at a time when mortgage holders are already shouldering a large burden from servicing their loans.

As it stands, mortgage holders spend a near-record share of their incomes on loan repayments. If the RBA follows through with its predicted two to three further rate hikes, the OCR could rise to 5.10%, up from just 0.1% during the height of the COVID-19 pandemic in 2021.

This would lead to an average variable mortgage rate on new owner-occupier mortgages rising to around 6.95%, up from a low of only 2.35% in 2021. The impact on mortgage holders is stark, with monthly repayments increasing by around $120 for each additional 0.25% increase in the OCR.

For those who purchased homes near the peak using the Albanese government's 5% deposit scheme, the situation is particularly dire. These borrowers face negative equity and the prospect of being trapped in homes with mortgages they can no longer afford.