RBA Rate Rise to 4.6% Piles Pressure on New Homeowners

For Natasha and her partner, buying a home after five years of moving between rentals and even a stint living in a caravan felt like the end of a long struggle. They used the federal government's 5% deposit scheme to get into the market, and the relief was overwhelming. "I think we cried for like a week," Natasha said, describing the stability of no longer being at a landlord's mercy.

That relief has been short-lived. Just months after settling into their new home, the Reserve Bank of Australia lifted the cash rate by another quarter of a percentage point, taking it to 4.6%, the highest level in almost 15 years. For the couple, it means repayments they had only just budgeted for are already climbing again.

The RBA governor defended the decision, arguing that persistent demand across the economy, partly fuelled by investment tied to the artificial intelligence boom, combined with businesses passing on costs linked to the conflict in the Middle East, is keeping inflation uncomfortably high. "If we don't address this, inflation will get worse and interest rates will have to be higher," the governor said, adding that the Iran war has been a significant economic shock that has made the country poorer overall.

Since the tightening cycle began, household mortgage debt has surged 138% to roughly $2.5 trillion, even though the cash rate itself sits at levels last seen in 2011. Pressed on whether the central bank is underestimating the strain on individual households, the governor acknowledged some families are doing it tough but maintained there is no sign of broad-based stress across the household sector as a whole.

The numbers tell a different story at the kitchen table. A homeowner with a $750,000 mortgage now faces an extra $114 a month from this rise alone, bringing the total increase in repayments to $454 since the RBA started raising rates in February. Borrowers describe rising costs on every front, from insurance to fuel, on top of higher rates.

Arts teacher Keith Yap, who now works two jobs and relies on family support to cover bills, said he has never experienced rates this high and wants the RBA to show more understanding of how hard households are working just to keep up.

Today's rate decision was unanimous, and the central bank has not ruled out further increases. Economists are now watching next month's quarterly inflation figures closely, with some predicting another hike as soon as November, and others flagging the possibility of further rises into next year if inflation surprises to the upside. In the meantime, financial counsellors are urging strained borrowers to check whether their bank is offering competitive rates, warning against paying what they call a "loyalty tax" by staying with an unfavourable loan instead of refinancing.