RBA Slams Brakes: Cash Rate Hits Highest Level Since 2011
The Reserve Bank of Australia (RBA) has increased the cash rate to its highest level since 2011, hitting 4.6%. This is the fourth increase this year, and it's a move that will have a significant impact on Australian households.
The RBA pointed to stronger-than-expected inflation at home, alongside much higher global energy prices as conflict in the Middle East has broadened. However, the pain of this rate hike will feel different for today's households compared to those 15 years ago.
Average mortgages have doubled in size since 2011, making borrowers more sensitive to every move in rates. In June 2011, the average new owner-occupier home loan was around A$363,000, but by this year it had increased to $731,000. Meanwhile, incomes have risen over this period, but nowhere near as quickly.
The average mortgage in 2011 was equivalent to around 5.4 years of average full-time earnings, whereas today it's closer to 6.7 years. This means that even with a lower cash rate, borrowers are facing a larger household bill due to the increased size of their mortgages.