Millions of Australians are facing another significant increase in mortgage costs after the Reserve Bank of Australia (RBA) raised interest rates by 0.25 percentage points, pushing the cash rate to 4.35 percent. This marks the third hike since February, reversing the rate cuts seen in 2023.
Impact on Borrowers
For an owner-occupier with a $600,000 mortgage and 25 years remaining, the latest increase adds $91 to their minimum monthly repayments. Cumulatively, the three hikes since February have added $272 per month. The average owner-occupier variable rate will rise to 6.26 percent, exceeding the 6.25 percent threshold for the first time since January 2025.
This comes after the Australian Bureau of Statistics reported that headline inflation accelerated to 1.1 percent in March, with annual inflation climbing to 4.6 percent from 3.7 percent—the fastest pace since September 2023.
Economic Analysis
Shane Oliver, chief economist at AMP, commented: "Interest rates are now back to the high levels we saw in 2023, so the rate cuts have been fully reversed. For someone with an average mortgage of about $660,000, it's going to cost them an extra $110 a month in interest payments, which is about $1,300 a year. So obviously there's going to be a hit to household budgets, particularly those with a large mortgage."
Mr. Oliver noted that for those without a mortgage, the situation is "not so bad," though renters may face upward pressure on rents as landlords seek to cover higher interest costs. However, he added that many Australians might benefit from higher bank deposit rates, which are likely to rise in response.
The economist also pointed out that while higher rates lead to lower property prices—a potential silver lining for homebuyers—the overall effect remains negative because Australian households hold nearly twice as much debt as bank deposits. "The value of total household debt in Australia is almost double the value of household bank deposits," he said. "This will act as a drag on spending in the economy. If you're a small business owner, people will be less cashed up and have less money to spend, leading to lower demand for products and services."
