Grim warning to Aussie mortgage holders clinging to hope of an interest rate cut

RBA warns that as many as 800,000 Australians might have to sell their homes if rates keep rising.

Interest rates have risen by 0.25 per cent this month, the first of what is tipped to be a series of hikes to come. While the Reserve Bank of Australia (RBA) has indicated it is prepared to move slowly, it has left the door open to larger increases down the track. That has rattled property experts and consumer groups, who warn such a move could sink hundreds of thousands of homeowners.

Soaring interest rates could force as many as 800,000 people to sell their homes.

The latest figures from the Australian Bureau of Statistics show there were 10.3 million mortgages in Australia in March, with 5.6 million of those being owner-occupied. Of those owner-occupied mortgages, 3.9 million were held by people who had taken out a loan in the past five years, meaning they were likely to be paying higher interest rates than those who had an existing mortgage. The RBA has forecast that interest rates will continue to rise over the next two years, reaching 2.5 per cent by the end of 2023. If that happens, it would mean that the average homeowner with a $500,000 mortgage would be paying an extra $2,500 in interest each year. For those who have taken out a loan in the past five years, the increase would be even higher. **Consumer groups have warned that such a sharp increase in interest rates could force as many as 800,000 people to sell their homes.** According to a report by the Grattan Institute, around 40 per cent of households are currently paying more than 30 per cent of their income on mortgage repayments. If interest rates rise to 2.5 per cent, that figure could increase to 50 per cent, making it very difficult for those households to make ends meet. **The RBA has acknowledged the risks of rising interest rates but said it is committed to bringing inflation under control.** The RBA has said it is prepared to move "gradually" on interest rates, but it has left the door open to larger increases down the track. If interest rates do rise more quickly than expected, it could have a significant impact on the housing market. According to CoreLogic, house prices in Sydney have already fallen by 2.5 per cent since the start of the year. If interest rates continue to rise, that decline could accelerate. **Property experts have warned that a rapid rise in interest rates could lead to a "catastrophic" fall in house prices.** The chief executive of the Real Estate Institute of Australia, Adrian Kelly, said a rapid rise in interest rates could lead to a "catastrophic" fall in house prices. "If interest rates rise too quickly, it could lead to a significant number of forced sales, which would put downward pressure on prices," Mr Kelly said. **The RBA is expected to meet again in June to discuss interest rates.** The RBA is expected to meet again in June to discuss interest rates. At that meeting, it will consider the latest economic data and decide whether to raise interest rates again. If the RBA does raise interest rates again, it will be the second increase in as many months. That would be the fastest pace of interest rate increases since 2008.