One fifth of mortgage holders bracing for interest rate pain

Australians already struggling with the cost of living crisis are bracing for further pain when their fixed rate mortgages end this year.

One fifth of mortgage holders who signed up for a home loan during the pandemic period of ultra low interest will have their fixed rates rolled over by the end of the year.

Most of the loans taken out during that period were struck at interest rates of between 1.75 per and 2.25 per cent.

Since then, the Reserve Bank has aggressively hiked the cash rate in an attempt to curb skyrocketing inflation, which hit 7.8 per cent in the year to December.

That increase has all but cemented further hikes, likely 25 basis points in both February and March, ANZ senior economist Catherine Birch said.

Further increases from the central bank will only compound the issue as borrowers on fixed rates can expect their rate to more than double to around 5 to 6 per cent.

Finance Minister Katy Gallagher said she was “mindful” of the impact this would have on homeowners and businesses.

“We’ve always said 2023 will be a challenging year, dealing with the inflation challenge really for the government is a key economic challenge,” she told ABC Radio.

But despite warnings further rate hikes could spiral the economy into a recession, the Finance Minister acknowledged Australia was not immune to the global challenges.

“We are not pretending there are no challenges … but we also have very low unemployment, we’re getting good prices for the things that we sell,” she said.

“The government needs to remain focused. Obviously, we’ve got a budget to land. And we’re in the middle of doing that.

“Some of those decisions are really key to making sure we work with the Reserve Bank, not against it, and supporting the economy where we can.”

Health and cost of living relief were to be a major focus of the budget, Senator Gallagher flagged.