Homeowners will be bracing for the impact of an additional $120 per month on the median Illawarra mortgage repayment after the Reserve Bank lifted interest rates by 0.25 percentage points.
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Trinity Maat, who purchased a Farmborough Heights three bedder last Tuesday with her partner, said the couple were already planning for incoming rate hikes.
"We have a buffer in place in our weekly income so if the interest rates do rise, we can still have the occasional avocado on toast, but we need to be mindful of what we're spending," Ms Maat said.
In announcing its decision to raise the cash rate to 3.35 per cent, the RBA said it expected inflation to cool off in the next year, but that further rate rises were to be expected.
"The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that," RBA governor Philip Lowe said.
The rise takes interest rates to their highest level in more than a decade.
UOW lecturer Dr Paul Mazzola said despite record high inflation figures for the December quarter, there was some sign that the inflation tiger had been tamed.
"I'm not confident it will be the last one, but I'm confident it will be one of the last," he said.
In the Illawarra, a borrower who purchased a home at the median Illawarra house price of $930,539 and was paying off a loan of 80 per cent - $744,430 - would see an increase in $120 in their monthly repayments, taking the total paid to the bank each month to $4574.
While many homeowners such as Ms Maat may have a buffer of about three per cent of their original loan repayments, the RBA acknowledged that increasing interest rates was causing pain for some families.
"Some households have substantial savings buffers, but others are experiencing a painful squeeze on their budgets due to higher interest rates and the increase in the cost of living," Dr Lowe said.
With the RBA already having increase interest rates by three per cent, borrowers who were at their limit when purchasing a property in 2021 may have already reached their limit, Dr Mazzola said.
"Normally, banks like to ensure that borrowers can withstand a two to three per cent increase in interest rates, but we've seen that already," he said. "Even under the bank's calculations, these poor households will be finding it quite difficult."
Recently released retail spending figures from the Australian Bureau of Statistics highlighted that some of this pain was being felt by households, which had cut back retail spending in the December quarter as the impact of consecutive rate rises flowed through the economy.
Ms Maat said even prior to purchasing her house, a dinner party at home was often preferred to a night at the pub.
"It's obviously much cheaper to have people come over to your house than it is to go out to the pub," she said. "We're being smart in what we're buying. Do you really need that new pair of shoes, or new shirt, can it wait?"
Despite the pain being felt by households, the RBA acknowledged that household spending was only part of what was driving inflation.
"Global factors explain much of this high inflation, but strong domestic demand is adding to the inflationary pressures in a number of areas of the economy," Dr Lowe said.
Dr Mazzola said this set of circumstances would contribute to the kinds of cost of living measures that will be forthcoming in the May federal budget.
"Spending has to be targeted to provide relief in sectors of the economy," he said.
In any case, Ms Maat said price rises were not only happening in mortgage repayments.
"Even just the cost of groceries has gone up. A $200 shop 12 months ago is now $250. It's really impacted us [and] the way we shop."
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