The days of record-low interest rates are officially over
Unless you’ve been living under a rock this week, you will have heard that the RBA has lifted interest rates for the first time in a decade. Our official rate is now 0.35%.
Similarly, the US Fed lifted rates to 0.75%-1% and the Bank of England lifted their benchmark to 1%.
Higher cash rates mean every person with debt is going to start paying more, since the ink hadn’t even dried on the RBA’s announcement before all the banks passed the increase on to customers.
Unsurprisingly, the increase didn’t flow on to cash accounts or term deposits, so not great news for those living off their savings.
And you can be pretty confident that the pain doesn’t end there. The war in Ukraine, COVID-19 lockdowns in China, and rising inflation are likely to push rates even higher – we could be looking at 3.5% to 4% variable by the end of the year.
For the average $700,000 mortgage holder, that translates to an interest-only increase of $145 per month, which kicks in next week. But in a year’s time you could be looking at a $729 per month increase on the same loan.
This is our new reality, which will likely come as a shock to borrowers who have only known the low interest rate conditions we’ve been experiencing over the past decade. If you’re concerned, now is the time to get in touch with your financial advisor, so you can get on the front foot.
In other news, our markets are getting smashed today after 3%+ losses in the US last night. All the uneasiness in the US is being driven by speculation around when interest rates will be lifted further and by how much.
The US Fed Chair Jerome Powell has said there will not be a 0.75% rate hike in June, but the markets don’t believe him. So tech stocks in particular have been sold off the Nasdaq, down more than 25% from recent highs.
The good news is our ASX200 is holding relatively well, down only 5.4% from our recent high, and compared with the S&P500 which is down 14.55%.