The Commonwealth Bank of Australia will increase mortgage interest rates by 0.5 percentage points, passing on the Reserve Bank’s latest official rate rise to customers in full.
The Reserve Bank of Australia increased the official cash rate by 0.5 percentage points on Tuesday, taking it to 1.35 per cent.
CBA was once among Australia’s largest providers of financial advice.Credit:Paul Jeffers
The RBA has now lifted the cash rate by 1.25 percentage points in three months. Economists expect the cash rate will continue to climb in the coming months, reaching around two per cent by the end of the year to tackle rising inflation.
On Wednesday morning, CBA was the first bank to announce changes to its interest rates. Standard variable home loan rates will increase by 0.5 per cent.
The deposit rate for several savings products – GoalSaver and Youthsaver – will also increase by 0.5 per cent. The changes will take place from July 15.
“These new deposit rate changes, combined with the increases we’ve made over the past two months, will help deliver better savings outcomes for our customers, however they are looking to save,” said retail banking group executive Angus Sullivan.
“We have a range of deposit products to suit our customers’ needs and encourage them to speak with us to ensure they are in the product that best suits them,” Sullivan said.
Sullivan said the changing rate environment could raise questions for customers and they encouraged them to connect with a home lending specialist if they needed help.
Treasurer Jim Chalmers said the country was strong enough to withstand a second consecutive 0.5 percentage point increase in official interest rates, economists said the RBA would push ahead with a similar lift when it meets again in August.
He said he had spoken to the heads of Australian banks about passing the interest rates on to savers who have faced record-low returns for several years. While about 34 per cent of households have a mortgage, more than three quarters have savings.
“There’s more pain on the way for variable home loan customers with another double hike tipped for next month. If this happens, it will be the sharpest rise to the cash rate since 1994, when the RBA hiked by 2.75 percentage points in the space of five months.”
If all four big banks pass on the rate hike in full, RateCity estimates that an owner-occupier with a $500,000 mortgage over 25 years would see their repayments rise by $137.
Someone with a mortgage of $1 million will see an increase of $273 per month.
RateCity also estimated that if all the banks passed on the full cash rate rise, the average existing owner-occupier variable rate will be 4.11 per cent.
“When you combine the last three rate rises, the average household with a $500,000 loan will see their monthly repayments rise by $333 in total. That’s like paying for an extra week’s worth of groceries and petrol, every single month,” said RateCity research director Sally Tindall on Tuesday.
The RBA is expected to lift rates again in July.Credit:Peter Braig
“There’s more pain on the way for variable home loan customers with another double hike tipped for next month. If this happens, it will be the sharpest rise to the cash rate since 1994, when the RBA hiked by 2.75 percentage points in the space of five months.”
She said borrowers will need to ready themselves for rates to rise by a total of 2.5 percentage points by early next year, potentially even higher.
“While rising interest rates are designed to bring down inflation, it doesn’t happen overnight. It’s going to take a number of months for the RBA to get inflation back under control, which means, for now, families will feel the heat from all fronts,” she said.
Last week, the Commonwealth Bank increased fixed-rate mortgages for loans of one to five years by a 1.4 percentage points and NAB quickly followed, hiking their fixed-rate mortgages by 1.1 percentage points.
Research by financial comparison website Mozo released this week found if the RBA increased the cash rate by 50 basis points this week and lenders were to pass the hike on in full, the average variable rate would jump to 4.15 per cent and the average big four bank rate would top 4 per cent.
It also found that 45 per cent of mortgage holders said they will be under serious financial stress when their home loan interest rate passes 4 per cent.
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