WINNERS of historic Reserve Bank rate hike revealed as mortgage holders suffer from rate hike

While homeowners will grit their teeth when the Reserve Bank hikes interest rates for the first time in 11 years, there are some winners from the interest rate hike.

Those trying to save – including for their primary residence – as well as international travellers, online retailers and banks are obvious beneficiaries of a rate hike.

The central bank surprised financial markets on Tuesday with a larger-than-expected hike to curb rising inflation.

The cash rate is up 0.25 percentage point, ending the historic era of a record low 0.1 percent cash rate and marking the first rise since November 2010.

The official interest rate is now 0.35 percent – the highest since March 2020, when the pandemic began – after inflation rose 5.1 percent in the year to March, or the fastest pace in 21 years.

More than 1.5 million borrowers will be eligible for a variable increase for the first time as the monthly payments on a typical $600,000 mortgage increase by $78.

But for those households who don’t own a home but save money in the form of term deposits, perhaps for a first home, the rise is good news as their money earns higher interest rates.

For those households who do not own a home but save cash in the form of term deposits, perhaps as a deposit for a first home, the rise is good news as their money earns higher interest rates

For those households who do not own a home but save cash in the form of term deposits, perhaps as a deposit for a first home, the rise is good news as their money earns higher interest rates

For those who travel abroad or like to buy foreign goods through online sites, their money has greater purchasing power after interest rates rise

For those who travel abroad or like to buy foreign goods through online sites, their money has greater purchasing power after interest rates rise

Banks are an obvious winner of the first rate hike in 11 years as lenders receive a larger percentage of a home loan as interest

Banks are an obvious winner of the first rate hike in 11 years as lenders receive a larger percentage of a home loan as interest

However, if the rate of inflation exceeds the interest earned on a savings account, the likely benefit is lost. In addition, banks cannot choose to pass on the full amount of the rate hike to savers.

The potential impact of this surge and future rate hikes in curbing rising property values ​​in Australia may also be good news for budding homeowners.

A higher interest rate will also strengthen the Australian dollar as foreign investors buy more of our currency to try to buy local assets.

Rate hikes are also making Australia a more attractive place to invest.

This is positive news for those who travel abroad or like to buy overseas goods through online sites as their money has greater purchasing power against foreign currencies.

Take away – your post-Covid vacation abroad will now be slightly cheaper than before the rate hike.

Prime Minister Scott Morrison and Treasurer Josh Frydenberg hold a news conference following the Reserve Bank's announcement of rate hikes

Prime Minister Scott Morrison and Treasurer Josh Frydenberg hold a news conference following the Reserve Bank’s announcement of rate hikes

A higher cash rate also means that imports to Australia will be cheaper, but our exports will be more expensive.

banks are the other obvious winners of the recent surge.

When interest rates are viewed as “the price of money,” it is good for the financial institution’s bottom line that banks and other lenders receive a larger percentage of a home loan as interest.

A final group of winners are stock market bargain hunters. Rate hikes have a dampening effect on the overall value of the stock market, meaning those with excess money to invest can buy cheaper stocks and hold onto them for a while when the market recovers.

The Reserve Bank of Australia has hiked interest rates for the first time in 12 years to curb rising inflation (pictured at an auction in Sydney's Hurlstone Park).

The Reserve Bank of Australia has hiked interest rates for the first time in 12 years to curb rising inflation (pictured at an auction in Sydney’s Hurlstone Park).

The rate hike was larger than the 0.15 percentage point rise financial markets had been expecting and threatened hopes of Prime Minister Scott Morrison’s re-election ahead of the May 21 election.

The central bank’s move is also the first in an election campaign since November 2007, when former Liberal Prime Minister John Howard lost power.

Governor Philip Lowe said: “The economy has shown resilience and inflation has risen faster and to higher levels than expected.”

Rate hike winner

SAVER: Those who have cash on time deposits receive a higher return on their savings. That’s positive for those saving for a home deposit, and doubly beneficial if rising interest rates weigh on Australian property values.

TRAVELER: A rise in interest rates generally strengthens the Australian dollar as foreign investors seek more of our more valuable currency. As a result, our dollar is buying more foreign currency than before the rate hike, reducing the cost of your vacation abroad.

BANKS: Higher interest rates mean banks take a higher percentage of a home loan’s interest in interest – which increases their profit margins.

Three of Australia’s big four banks – ANZ, Westpac and NAB – expect the Reserve Bank to hike interest rates to 2% by 2023 as interest rates rise seven more times, with potential further pain in June.

dr Lowe also expects the era of low wage growth that began in mid-2013 to be over this year, after last year’s announcement of weak wage increases could help the RBA maintain interest rates “at the earliest” until 2024.

“There are also signs that wage growth is picking up,” he said.

“Given this and the very low level of interest rates, it is appropriate to start the process of normalizing monetary conditions.”

More than 1.5 million borrowers will be eligible for a variable increase for the first time as the monthly payments on a typical $600,000 mortgage increase by $78.

St. George, owned by Westpac, was the first bank to announce an increase in variable mortgage rates.

“We are currently reviewing our variable interest rates following the RBA cash rate decision,” it said.

‘We will keep you informed of any changes here.’

Last month, the RBA forecast an increase in the cash interest rate to 2% – a level not seen since May 2016 – which would cause Australian house prices to plummet by 15%.

The benchmark interest rate rose 0.25 basis points, ending an historic era of a record low of 0.1 percent and marking the first hike since November 2010. This was also much larger than the 0.15 basis point increase seen by financial markets had expected

The benchmark interest rate rose 0.25 basis points, ending an historic era of a record low of 0.1 percent and marking the first hike since November 2010. This was also much larger than the 0.15 basis point increase seen by financial markets had expected

CoreLogic Research Director Tim Lawless expects house prices in Sydney and Melbourne to fall 15 percent in the coming year as interest rates continue to rise.

“Most of the declines will be concentrated in those two cities because that’s where affordability is greatest and they’re also likely to face demographic headwinds just from interstate migration that really favors the smaller states,” he told Daily Mail Australia.

“The counterargument to this is that as we see overseas borders open up, we will see more migration, but that generally feeds into rental demand rather than buying demand.”

Brisbane, Adelaide, Hobart and Canberra, as well as regional areas of coastal New South Wales, southern Queensland and northern Tasmania are likely to see smaller declines of five to 10 percent.

“These markets tend to be a little more isolated, in part because affordability isn’t quite as great,” Lawless said.

These markets are more affordable than Sydney and Melbourne and would continue to benefit from professionals moving there who can work from home.

A 15 percent fall in Sydney’s median home price from $1.417 million would bring values ​​back to $1.204 million — where they were mid-last year.

A drop of the same magnitude in Melbourne would see the median home price drop from $1.001 million to $850,787, the lowest since May 2017.

But with an unemployment rate of just 3.95 percent, the lowest since 1974, Mr Lawless said forced sales were unlikely.

“This will likely be more of a lack of demand and people looking to sell will need to adjust their price expectations,” Lawless said.

A 0.25 percentage point increase will cause the monthly payments on a typical $600,000 mortgage to increase by $78 from $2,306 to $2,384.

That’s based on a bank passing on the RBA hike in full, raising a popular floating rate from 2.29 percent to 2.54 percent.

How much will THIS rate hike cost you?

$500,000 : Monthly repayments increase by $65 from $1,922 to $1,987

$600,000 : Monthly repayments increase by $78 from $2,306 to $2,384

$700,000 : Monthly repayments increase by $90 from $2,691 to $2,781

$800,000 : Monthly repayments increase by $103 from $3,075 to $3,178

$900,000 : Monthly repayments increase by $116 from $3,459 to $3,575

$1,000,000 : Monthly repayments increase by $130 from $3,843 to $3,973

Data is based on a variable interest rate increasing from 2.29 percent to 2.54 percent

https://www.dailymail.co.uk/news/article-10777317/The-WINNERS-historic-Reserve-Bank-rate-hike-revealed-mortgage-holders-suffer-hike.html?ns_mchannel=rss&ns_campaign=1490&ito=1490 WINNERS of historic Reserve Bank rate hike revealed as mortgage holders suffer from rate hike

Andrew Kugle

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