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Business

Melbourne single mum struggling to pay extra $360 a month after RBA interest hike

Melbourne single mum struggling to pay extra $360 a month after RBA interest hike

A single mum’s “dream” of becoming a homeowner has become more like a nightmare as she struggles to survive amid the rising cost of living.

Jodi Cameron, 40, from Melbourne, currently has nothing in her bank account after building her house cost more than expected. She can’t even afford to complete the house, with her driveway unfinished because she ran out of cash.

On Tuesday afternoon, she was hit with more bad news; the Reserve Bank of Australia had increased interest rates again, for the fourth month in a row.

It means the single mum, with two daughters aged four and eight, must now fork out an extra $140 every month to pay back her mortgage.

In total, since the central bank started increasing interest rates in May, the family is now paying back an extra $360 a month — money it desperately needs.

“It’s just horrible,” Ms Cameron told news.com.au.

“I do find myself in a situation where paying rent and a mortgage and daycare fees, there’s nothing left.”

Currently, her savings account stands at $0, she said.

The mum worked throughout the Covid pandemic as a disability support worker and blames her current predicament on one thing — missing out on a government grant.

She had factored in receiving a $15,000 grant to help her build her own home but missed out, leaving her financially wrecked.

“I just wanted to own my own home,” Ms Cameron explained.

“It’s just disgusting, it’s so frustrating, I work my guts out, all I wanted was the great Australian dream.”

Her variable interest rate has gone up from 2.79 per cent to 4.5 per cent in the past three months, and is set to go up even further after the rate hike on Tuesday.

“I’m not on a fixed mortgage, I don’t know how I’m going to do it,” Ms Cameron said.

“I’m probably going to have to pull my [youngest] daughter out of daycare because I can’t afford daycare. That also means, how am I meant to work from home with a child?”

As a single mum with no family to fall back on, Ms Cameron had resigned herself to renting but in 2020, she was given hope that she might be able to break into the property market.

The federal government announced the HomeBuilder grant scheme in a bid to increase the disruption to the economy and the building sector during Covids, where eligible homeowners received $15,000 to form part of the payment for a building project for their primary residence.

Ms Cameron met all the criteria for the grant so bought a $263,000 block of land in Lang Lang, a regional town southeast of Melbourne, in August 2020 in the hopes of setting herself up financially for the future.

“I got on the low deposit scheme, I didn’t need a massive deposit,” she explained.

Then in March the following year, she signed a build contract which cost $300,000 for a four-bedroom, two-bathroom home.

She only needed a 5 per cent down payment for the land and the build contracts and was expecting the extra $15,000 from the grant to provide a helpful buffer to afford the progress payments.

But then she logged back onto the HomeBuilder online portal and was devastated to discover she had missed a key due date — which her broker and bank had never mentioned to her.

“I missed a portal cut off date that was never shown or advertised anywhere,” Ms Cameron lamented.

As a result, she was not able to be part of the scheme.

Near the end of her build, the mum ran out of funds and couldn’t afford to pay for a driveway.

“I’ve got no driveway, it’s just mud, I can’t afford it, it’s not nice to have that money you relied on ripped away from you,” she added.

“I owe the real estate the last month’s rent which I can’t pay.

“I assumed I would have this $15,000 to help me out, I don’t have it. This grant meant a lot.”

The mum is now waiting with bated breath as the Reserve Bank is expected to keep hiking interest rates till the end of the year.

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Australia

Interest rates: RBA raises cash rate by 50 basis points to 1.85 per cent

Interest rates: RBA raises cash rate by 50 basis points to 1.85 per cent

For the fourth consecutive month the Reserve Bank of Australia (RBA) has hiked interest rates as inflation runs rampant.

At 2.30pm during the RBA’s monthly meeting, it increased Australia’s interest rate by 50 basis points, or by 0.5 per cent.

The decision brought the cash rate from 1.35 per cent to 1.85 per cent, largely in line with economist’s predictions.

This marks the first time the RBA has lifted the rates for four months in a row since the introduction of the two to three per cent inflation target in 1990.

This follows last week’s increase in annual inflation, which hit 6.1 per cent, which was its highest level in 21 years since 2001.

Tuesday’s rate rise means those paying off the average home loan of $500,000 will need to cough up an extra $140 a month.

And the August hike isn’t expected to be the last, with economists forecasting that interest rates could peak up to two per cent by the end of the year.

As soon as news of the interest rate rise broke, Treasurer Jim Chalmers weighed in and acknowledged it was a tough time for Australian borrowers, saying the announcement would “sting”.

“It’s another difficult day for Australian homeowners with a mortgage,” he said.

“The independent ReserveBank has just announced its decision to increase interest rates by another 0.5 per cent, bringing the cash rate to 1.85 per cent.

“Australians knew this was coming, but it won’t make it any easier for them to handle.

This cycle of interest rate rises began before the election in response to inflationary pressures that began accelerating at the beginning of this year.

“Average homeowners with a $330,000 outstanding balance will have to find about $90 a month more for repayments as a consequence of this decision today, on top of around $220 extra in repayments since early May.

“For Australians with a $500,000 mortgage, it’s about an extra $140 a month, in addition to the extra $335 they’ve had to find since early May.

“As I said, Mr Speaker, this decision doesn’t come as a surprise. It’s not a shock to anybody, but it will still sting.

“Families will now have to make more hard decisions about how to balance the household budget in the face of other pressures like higher grocery prices and higher power prices and the costs of other essentials.”

‘Misleading’: Calls for bank boss to resign

Ahead of the interest rate rise, there were growing calls for the RBA’s board and its governor, Philip Lowe, to resign after a series of missteps.

Chief among them was the promise that interest rates wouldn’t rise until 2024 which one top economist said was “misleading” for borrowers.

Critics also pointed out that the rapid rate rises could inadvertently lead to a recession while at the same time inflation is running rampant.

Warren Hogan, chief economist at both ANZ and Credit Suisse, told The Daily Telegraph that the RBA was guilty of some “pretty bad errors” in recent months.

The RBA lowered the cash rate to 0.1 per cent at the end of 2020 amid the Covid-19 pandemic – the lowest it had ever been – and throughout the pandemic said they didn’t plan on raising the cash rates until 2024.

When it lifted the cash rate for the first time in May and then every month since, Mr Hogan said it was “misleading people, basically”.

He also said Australia’s central bank had taken on risky strategies including spending lots on insurance and sinking funds into a bonds program which had not paid off.

Mr Hogan, who was also the former principal adviser to federal treasury, said: “It’s unforgivable. I think they should resign – the whole board.”

Mr Lowe “should have the character to stand down,” Mr Hogan added.

RELATED: Find out how much the rate rise will cost you

Mr Lowe said the cash rate would remain at its record low of 0.1 per cent until at least 2024, but the rapid rise in inflation this year – caused in part by Russia’s war in Ukraine and supply chain issues on home soil – prompted the monthly hikes .

It comes as Australia’s cost of living crisis is worsening, making borrowers even more cash-strapped than usual.

In the last quarter, transport costs rose 13.1 per cent as the price of fuel rose to record levels for the fourth quarter in a row.

Meanwhile, grocery shopping is also causing hip pocket pain, with Australians outraged to find lettuce heads selling for $10 a pop and capsicums marked at $15 for a kilo.

Interest rates in Australia reached an all time high of 17.5 per cent in January 1990. Since then, they have averaged 3.93 per cent.

Before this year, the last time the RBA hiked up rates was in 2010. It has only been going down ever since.

As a result, more than one million home borrowers have never experienced an increase in mortgage rates, because they bought a home after 2010.

The official cash rate has been at a record low of 0.1 per cent since November 2020 in response to the Covid-19 pandemic until May 2022.

– with NCA NewsWire

Read related topics:Reserve Bank

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Categories
Business

Banks are winding back mortgage amounts as interest rates continue to rise

a couple with a baby and two dogs

Property prices may be dropping but that doesn’t mean that wannabe home owners are suddenly celebrating.

Lenders are simultaneously winding back how many people can borrow for mortgages as they factor in higher interest rate repayments and cost of living pressures.

Corey Chamberlain and his partner were just told by their mortgage broker that their borrowing capacity with a smaller lender has dropped by more than 20 per cent.

That’s compared with a national property price drop of just 2 per cent in the last three months.

“I’m gutted, really,” Mr Chamberlain told ABC News.

The couple with a young child were first approved for a mortgage of around $975,000 in late 2021, and then again when they went back for pre-approval earlier this year.

That’s when Australia’s official cash rate was still at 0.1 per cent.

Since May, the Reserve Bank has been raising the cash rate to tackle emerging inflation that’s hitting the Australian economy.

Today, the RBA is expected to hike the cash rate again to take it to 1.85 per cent.

Banks are passing the higher cash rate onto borrowers in the form of lending rates, which is impacting the head repayments on people’s loans.

In October, the regulator APRA also told the banks to raise the minimum interest rate buffer on loans from 2.5 per cent to 3 per cent.

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Categories
Business

Economy: Winners of rising interest rates revealed

Economy: Winners of rising interest rates revealed

Homeowners and renters are bracing for more bad news with interest rates tipped to rise again, but there are some people who are benefiting more than others.

Household budgets are being stretched to their limits after inflation hit a massive 6.1 per cent and cost of living pressures, including the prices of groceries and fuel, continue to mount.

But financial experts say some parts of the community are enjoying economic success during this difficult time.

So who are the winners of rising interest rates?

Financial planner and Edith Cowan University lecturer Damon Brown told NCA NewsWire there were two big winners — withdraw and people who locked in fixed rates before the cycle changed.

“Retires who are invested in cash have been doing it tough for the past five years because interest rates on their cash have been very low and below what Centrelink deems them to be earning,” he said.

“For the older people Centrelink deems them when it comes to their the age pension they can receive.

“So it’s called deeming, which is what the Centrelink assumes they can earn from their money, but they might not actually earn that money.

“An example might be my mother who invests all her money in cash. She’s been receiving one per cent interest rate for the last few years but Centrelink assumes that she earns a bit more than that. And so she’s receiving less Centrelink entitlement.”

Mr Brown said people who locked in fixed rates before the cycle changed, like him and his wife who secured a rate just under two per cent, were also doing well.

“We actually locked in for three years a year ago, so we’ve still got another two years to take the big difference,” he said.

Daniel Kiely, a senior research fellow at the Bankwest Curtin Economics Center, told NCA NewsWire rising interest rates were not necessarily a bad thing.

“If the increase in interest rates that we are seeing both in Australia and in other global jurisdictions flow through to the economy, and in turn lead to lower inflation, we will all be winners in the long-run.” he said.

“Lower inflation will make it more unlikely for a global recession to occur.”

In the shorter-term, Dr Kiely said savers would get higher returns on their savings accounts, but the speed at which this occurred would vary from bank to bank and depending on the type of savings account.

“Withdraw may benefit too, if savings supplement another source of income such as a pension,” he said.

“However, for savers and retirees to see the full benefit of such returns, inflation will need to come down substantially.”

Dr Kiely said there was a double edge sword for potential homeowner investors.

“Higher interest rates may stem house price increases and help those saving for a home,” he said.

“But, higher interest rates will also reduce borrowing capacity for many wishing to enter the housing market.”

LCI Lending partner Domenic Romeo said there were still more losers than winners.

“However, the people who have savings in a term-deposit or savings account will benefit from higher interest income rates,” he said.

“Some property investors may find themselves in a better position to purchase a property, due to the softening property prices too.”

In this month’s Finder RBA Cash Rate Survey, 26 experts and economists agreed the cash rate would change on Tuesday, with 23 of them predicting another increase of 50 basis points.

That would bring the cash rate to 1.85 per cent in August.

“A 50 basis point rate increase will see the average Aussie homeowner forking out an additional $610 per month compared to what they were paying four months ago,” Finder’s head of consumer research Graham Cooke said.

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