We called it, and there are more rate rises to come!

I hate to say I told you so.

 

Last week I suggested you should brace yourself for a 0.5% interest rate increase, and unfortunately, I was right.

 

For many mortgage holders the days of cheap money are well and truly over, and now we could see families and singles – particularly first home buyers – feel mortgage pain for the first time.

 

If passed on in full by the banks – which they will – the rate rise will add $133 a month on a loan worth $500,000 over 25 years, and $265 a month on a loan worth $1 million.

 

And it’s only going to get worse. I’m expecting the RBA rate to be 1.6% by the end of next year, so all mortgage holders need to brace for what is about to hit us.

 

This morning on 6PR Breakfast I was asked what it means for the average aussie, other than increased borrowing costs. Rather than a decrease in spending, I’m expecting a shift.

 

If you think about the past few years, we’ve seen a move toward goods spending over services spending. That is now unwinding as we push further from the impact of COVID and more towards a high-inflation, higher interest rate environment.



In other news, US Treasury Secretary Janet Yellen has told the US Congress that North America was facing unacceptable levels of inflation:

 

“When I said that inflation would be transitory, what I was not anticipating was a scenario in which we would end up contending with multiple variants of COVID that would be scrambling our economy and global supply chains,” Ms Yellen said. 

 

Her comments mean that sustained inflation can lead to a sharp rise in interest rates, which could make it financially difficult for some to pay off their debts and afford simple day to day living expenses.