Winter RBA interest rate rise adds pressure amid looming energy crisis
On Tuesday, the Reserve Bank of Australia increased the official cash rate by 50 basis points to 0.85 per cent – the second increase since 2010 and the highest in 22 years.
While the increase alone will add $133 a month to the cost of the average Australian mortgage, the real concern is the added pressure of inflation and a looming energy crisis. But, at Reventon, we believe there are still plenty of opportunities.
Supply constraints driving up costs
It’s no surprise the RBA uses interest rates to control domestic inflationary pressures. The kicker is this rate rise comes as inflation hits a 20 year high, driven by increased living costs.
“Petrol is probably the most obvious pain point for most Australians at the moment, along with increased food costs,” says XXXX “But gas and electricity supply issues are going to hit the hip pocket hard, especially as we enter the colder months.
According to the Australian Bureau of Statistics, non-discretionary annual inflation increased to 6.6 per cent in the March quarter.
“This is more than double the rate of discretionary inflation (2.7%),” continues XXXX. “Taking into account we’re also coming off the lowest interest rates of all time, some borrowers are looking at double the interest charged each month in addition to inflation – and it could be crippling.”
Mortgage holders losing sleep
With Australia’s big four banks expecting interest rates to reach 1.75 per cent by the end of the year, it’s no surprise one in three Australians are losing sleep over interest rate rises.
“For those experiencing interest rate rises for the first time, it can be really scary,” says XXXX. “Especially with the rising cost of living and no promise of rate stability.”
Based on current predictions, by 2023 the cost of the average Australian mortgage could increase from the current additional $133 to over $500 a month.
How to manage mortgage stress
While there’s been continued uncertainty over the last two years, XXXX says changing conditions aren’t always a bad thing… and can even be a good thing.
“Property prices are usually one of the first things to fall when interest rates go up,” he/she continues. “So, for those in a position to buy, it’s possible to secure a property at a good price. And in every challenge, there’s always a lesson.
“What we can learn from the current financial landscape, and something we always advise our clients is to maintain a substantial buffer.”
While you can hope for the best, in property and finance, you always have to be prepared for the worst.
“Clients who take advantage of our full suite of services, from accounting to superannuation, are usually the ones who achieve their goals with minimal setbacks,” he/she continues. “It’s a holistic approach that yields exceptional results, despite what the market is doing.
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