The Reserve Bank of Australia raised the cash rate by 25 basis points to 4.85% on Tuesday, the highest level in 18 years and the fifth increase this year, news.com.au reported. The decision landed on Melbourne Cup Day, and within hours all four major banks announced they would pass the full rise on to variable-rate mortgage holders.
Reserve Bank governor Michele Bullock conceded the move would hit households hard. “I think that is going to make it feel like it’s a recession because they feel poorer,” she said after the announcement. She pointed to weak income growth, a lack of productivity growth and a “massive supply shock” that has left Australians poorer overall.
Mortgage holders now pay $7,000 more a year
According to Compare the Market, Australians with an average loan of $731,000 are paying $114 more per month for each 25 basis point increase. Stacking the five hikes this year, that adds up to $584 more per month, or roughly $7,000 a year, in extra interest — money that no longer chips away at the principal.
David Koch urges households to “fight back”
Compare the Market economics director David Koch urged borrowers to renegotiate rather than accept the higher rates. “My advice? Fight back, put the kids to bed, sit around the kitchen table and go through the big bills as a family,” he said, naming energy, car and home insurance, health insurance, phone bills, subscriptions and, most importantly, the mortgage.
Koch said shaving a little off several bills would add up to “serious money” over a year, and advised borrowers to start with the mortgage because “that’s where the really big dollars can be.” He encouraged households to know their rate, check what else is available, and call their bank: “If you’ve never rung your bank and asked for a better home loan rate, do it… You could be amazed at what can happen when you simply ask.”
All four major banks pass on the full hike by November 13
Westpac was the first of the big four to move, announcing the full 25 basis point increase would reach customers on November 13. Westpac chief executive, consumer, Carolyn McCann acknowledged “another interest rate increase may be difficult for many households, particularly those who have already adjusted their budget this year.” National Australia Bank followed the same day, Commonwealth Bank was third, and ANZ was the last of the four to signal a change, with Commonwealth Bank’s variable rate changes also effective November 13. More than 20 lenders in total have told customers their rates will rise. ANZ group executive Pedro Rodeia encouraged customers to engage early, saying home loan customers “don’t need to wait until they’re facing a challenge to start the conversation.”
Three board members voted against the rise
The decision was not unanimous. ABC News reported that three Reserve Bank board members voted against raising interest rates, showing how much pressure the bank faces as it tries to control inflation while households deal with higher costs. Canstar money expert Sally Tindall said borrowers and renters were “sick of being punching bags” while savers cashed in, and urged households to write to the Treasurer and the RBA governor to say “enough is enough.” She advised anyone pushed toward breaking point not to panic — banks typically give two to three months before increasing repayments — but also not to do nothing, recommending borrowers ask their bank for a rate cut, shop around, or request hardship support if relief is refused.
Borrowers and renters feel it; savers gain
About one-third of Australians carry housing debt on largely variable rates, so their repayments rise with the cash rate; another third rent, many at the outer limit of what they can afford. For the final third who own their homes outright, higher rates mean higher returns on deposits and savings. One racegoer, Anthony, told ABC News that rising rates meant he and his partner would not be buying a house.
How the decision was telegraphed
Bloomberg reported that Deputy Governor Andrew Hauser rejected suggestions his hawkish comments last month had boxed the board into tightening. Some board members had criticized Hauser over his October 21 comments that the “inflation outlook looks materially worse,” which sent market bets on a rate hike surging to around 60% from 20%, according to the Australian Financial Review. Hauser addressed the issue in Canberra, pushing back on the idea that his remarks forced the board’s hand.
Calculating mortgage repayment increases
How much more will my mortgage repayments go up?
On an average loan of $731,000, each 25 basis point rise adds $114 a month, according to Compare the Market. The five rises this year total $584 more per month, or about $7,000 a year.
When do the new bank rates take effect?
Westpac and Commonwealth Bank confirmed their variable rate changes take effect November 13, with National Australia Bank and ANZ also passing on the full increase.
Did the Reserve Bank board agree unanimously?
No. ABC News reported that three board members voted against the decision to lift the cash rate.
What can mortgage holders do now?
Compare the Market’s David Koch advises calling your bank to ask for a better rate, comparing offers elsewhere, and requesting hardship support if needed.
The 4.85% cash rate stands as the highest in 18 years, a level reached only after five increases in a single year — and one that has already pushed market expectations of further tightening from 20% to around 60% before the board even met.