The Reserve Bank of Australia (RBA) has increased its benchmark interest rate by 0.25 percentage points, bringing the cash rate to 4.85% – its highest point since the 2008 global financial crisis. This marks the fifth interest rate hike this year as the RBA continues its efforts to combat persistent inflation.
The decision means borrowers with typical mortgages will see their monthly repayments increase, adding further strain to household budgets that are already stretched thin. According to data insights director at Canstar, Sally Tindall, while Australia's interest rates are nearing 2008 levels, today's mortgage holders face significantly larger debts. The average new owner-occupier loan has nearly tripled since November 2008, rising from $254,000 to $731,000, while median property prices have also increased substantially.
For a homeowner with a $600,000 mortgage, this latest hike translates to an additional $92 in monthly repayments. Across the five rate increases this year, the cumulative impact is an additional $456 per month. Tindall expressed concern that some borrowers may be reaching their financial limits, with limited capacity to absorb further increases.
Macquarie Bank was quick to pass on the RBA's decision, announcing an increase of 0.25 percentage points to its variable home loan rates, effective November 19. Ben Perham, head of personal banking at Macquarie, acknowledged the challenging economic environment for Australians and encouraged customers facing financial hardship to seek assistance.
Analysis by The Australia Institute suggests that while mortgage holders bear the brunt of these rate rises, Australia's major banks are experiencing record profits. The institute estimates that the big four banks now profit $266,000 from the average owner-occupier loan of $731,000 over 30 years, an increase of $40,000 since interest rates began to climb earlier this year. Greg Jericho, Chief Economist at The Australia Institute, criticized this trend, stating that banks are capitalizing on customer difficulties rather than offering support.
Former RBA economist Luke Hartigan noted that the RBA's previous strategy of incremental rate adjustments may not have been sufficient to control inflation. He suggested that the RBA might be compelled to continue tightening monetary policy despite potential economic risks, including a recession and rising unemployment, which could lead to further declines in housing prices in early 2027. Hartigan also pointed to the role governments could play in managing inflation through fiscal policy.
Shane Oliver, chief economist at AMP, forecasts a national house price decline of approximately 15% from peak to trough, characterizing the current downturn as the fastest since 1980. He anticipates that Sydney, Brisbane, Adelaide, and potentially Perth will see the most significant price drops, with Melbourne and Hobart expected to be more resilient. Oliver predicts prices will bottom out in the third quarter of next year, with a modest recovery commencing in 2027-28, contingent on the RBA beginning to lower interest rates. He cautioned that the RBA is likely to maintain a hawkish stance for an extended period, with rate cuts not expected until the final quarter of next year.
Angus Moore, a senior economist at realestate.com.au, indicated that the recent rate increase will prolong the existing downturn in the housing market, with national home prices having already declined for seven consecutive months. However, he described the adjustment as orderly, driven by rising rates and affordability challenges, rather than a distressed market correction. Moore highlighted that the labor market remains strong by historical standards, mortgage arrears are low, and many households retain substantial repayment buffers, suggesting that widespread distress is not yet apparent.