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How high will rates go? Here's what experts think about the RBA cash rate

After over a decade of cutting the cash rate, the Reserve Bank of Australia (RBA) is forecast to hike the cash rate periodically over the next two years. Homeowners and would-be borrowers may be nervously wondering how high their home loan rates will go?

The big four banks have all cast their predictions for the next few years of cash rate movements. For the average owner-occupier paying a variable rate, your home loan rate could reach 6.61% by the first half of 2023.


In February, all the big four banks have forecast another 25 basis points hike to the cash rate.

Keep in mind that these are just predictions, and that the big banks are subject to change these forecasts. Figures are accurate at the time of publishing.


Big four bank’s cash rate forecasts
  • CBA: 3.35% by February 2023, then dropping to 2.85% by December 2023

  • Westpac: 3.85% by May 2023, then dropping to 2.85% by November 2024

  • NAB: 3.60% by March 2023, remaining steady into 2024

  • ANZ: 3.85% by May 2023, then dropping to 3.60% by November 2024

The cash rate started at 0.10% in April 2022. These big four bank predictions may mean that interest rates on home loans could rise between 325 and 375 basis points in just one year.


Additionally, in a recent interview with the ABC, ANZ senior economist, Adelaide Timbrell, stated that there is a risk from inflation that that the RBA will have to hike the cash rate above 4%. ANZ's latest forecast indicated a peak of 3.85%, so a cash rate of 4% would mean at least four more hikes to the cash rate are to come.


If you are currently on a variable rate home loan, and your lender passes on these rate hikes in full, you may find your home loan repayments significantly more expensive in the next two years.


The average existing owner-occupier variable home loan rate in April 2022, prior to the first cash rate hike, was 2.86% according to the Reserve Bank of Australia.


How high could your repayments go?

Our friends at RateCity has crunched the numbers on how these rate hikes could impact a 25-year, $500,000 home loan.


Assuming that your lender passes on every single cash rate hike in full to your home loan as per the Westpac predictions, and that you are currently repaying a variable rate loan, you may find that your monthly repayments are $1,075 more expensive in May 2023 compared to April 2022.


How much more you may pay by 2023


Home loan Monthly repayments

Average rate in April 2022 – 2.86% $2,335

Average rate in May 2023 – 6.61% $3,410

Difference $1,075


Source: RBA average owner-occupier variable rate for existing customers, April 2022. RateCity. Note: Based on a 25-year, $500k home loan, comparing repayments with RBA average rate in April of 2.86%, versus a 375 basis point increase from continuous cash rate hikes to Westpac's predicted peak of 3.85% in May 2023. Does not factor in fees.


This is a significant amount for homeowners to find within their household budgets, the equivalent of around two utilities bills or a long weekend trip away. Homeowners may want to take action now to help free up some space in their budget to accommodate higher repayments.


Alternatively, you may want to consider:

  • Making extra repayments now to chip away at your loan principal (if your lender allows extra repayments without penalty)

  • Paying into an offset account or redraw facility to help reduce your interest charges.

  • Refinancing to a lower-rate lender if it suits your financial needs and budget.

If you would like a free home loan health check, reach out to one of our MyFN mortgage professionals today to learn more, regardless of what stage you’re at in your property buying journey.


Source: RateCity


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