Australians who purchased their first home as prices soared in recent years are facing another interest rate rise at the same time as the value of their property is likely falling, after the Reserve Bank of Australia lifted the cash rate to 1.85% on Tuesday.
Graham Cooke, the head of consumer research at Finder, said the successive cash rate hikes will cost the average homeowner an additional $610 a month compared to what they were paying in April.
“Rising interest rates, soaring inflation, energy prices and the general cost of living are already squeezing household budgets,” Cooke said.
“This latest hike could cost the average mortgage holder a whopping $7,300 extra per year compared to what they were paying in April.”
The rise comes as property values fall. In July, the average dwelling value fell by 1.3% across the nation – the third month in a row house prices have dipped, according to figures released by property data firm CoreLogic this week.
Sophie Louise Hindes purchased a house with their partner in February. It is a three-bedroom home in Laverton, in Melbourne’s west.
“We paid $590,000 for the house, but the government has paid for 25% of that so we’ve ended up with a mortgage of $420,000,” Louise Hindes said.
Their loan repayments have already gone up by over $100 a fortnight. When they first moved in they paid $720, now they are paying $840.
“In terms of repayments it was cheaper for us to buy than rent,” Louise Hindes said.
“We did suspect they would go up so we bought well within our means.”
So far the increases have been manageable, but with the cost of everything else going up, they are changing their spending habits – eating out less, being more careful with groceries, and generally spending less money.
The couple budgeted to be able to pay for $1,000 a fortnight, but the increase will mean they put other plans – such as insulating the roof, taking the house off gas and even starting a family – on hold.
“My partner and I have been thinking about having a baby in the next couple of years but because I have insecure employment and no maternity leave, it’s going to make it much more difficult to plan to have a family if our repayments are still going up.”
For Laura and Robbie, who did not want their last names used, starting a family is also a concern.
They bought their first home, a two-bedroom apartment in Melbourne’s Elsternwick for $590,000 in March. They split their loan, and so far the rate rises have only meant a $45 a month increase.
“I’m not necessarily concerned about the rate rise but I’m worried about what it means for the future and where we are going to be at the end of the year,” Laura said.
“It’s not just the mortgage, it’s petrol, it’s food. That all ties into it as well and pushes the dream of the house and big backyard a bit further away.”
As they both work from home, they are thinking about how they could start a family in their apartment – how the office would have to double as a bedroom.
“I think about if we had two extra mouths, and doing school drop-offs, what we have right now wouldn’t be suitable. That all plays into it. I want to grow my family, but can I afford to grow it?”
Stevie Florent and her partner purchased a three-bedroom property in Reservoir, in Melbourne’s north, for $1.2m two weeks ago, so have not started paying monthly repayments yet.
“We were watching it, we were aware of it, but we didn’t really consider not buying because of it,” Florent said.
The couple made sure they only borrowed what they could – and budgeted for a 7% interest rate increase.
“That’s how we got the budget for the house and how we moved forward,” she said. “It made us nervous, but at the same time, the time to buy a house is when you need a house, if you’re lucky and privileged enough to do that,” she said.
