Image: Canva.
  • The cash rate is now 2.85%, making most variable home loans in the 4's
  • Christmas spending may be a challenge for many Australian consumers
  • Canstar and Entourage have provided tips with how to counter inflation worries

With the cash rate rising once again – albeit, by 0.25% – many Australians have become spooked by the rise in interest rates. After all, the Reserve Bank (RBA) was adamant the cash rate wouldn’t rise until 2024.

Since then, it has risen from 0.1% to 2.85%. Most variable interest rates are now in the 4’s, with fixed loans now comfortably in the 5’s and even 6’s.

Effie Zaho, Canstar’s Editor-at-Large and money expert, warned that given the RBA’s obligation of keeping inflation in its place at just 2-3% – currently, it is over 7% – it is unlikely relief will be seen anytime soon.

She said the next year is going to be very challenging, given inflation is yet to peak.

“Households will need to push through what is traditionally a silly spending season before they get some reprieve six or so months later,” she said.

“Christmas spending will exacerbate household budget pain so it’s important that Australians put a plan in place now to get them through the next 12 months.

effie zahos
Efie Zahos. Image – Canstar.

“There is light at the end of the tunnel as the interest rate reprieve is coming with one major bank forecasting a cash rate cut next year.”

Borrowers can expect a 0.25 percentage point cash rate rise in February and March, according to both NAB and Westpac.

However, Commbank is forecasting a cash rate next year, during the second half, and as much as by 0.50%.

Ms Zaho noted that energy prices will soar next year and in 2024, following a 20% price rise this financial year. Next financial year, a further 30% increase is expected, according to the Treasury.

Notably, home and contents insurance premiums rose nationally by 6.6% in the past year, with ongoing flooding and natural disasters expected to push premiums even higher, she said.

“Good news for those looking to enter the property market but not so great news for homeowners is house prices are forecast to drop by 20% from 2023 through to 2024, according to the Reserve Bank of Australia.”

Also, the federal government predicts wage growth to pick up this financial year, growing by 3.75% and the same again in the new financial year from July.

Four tips to counter the rising cost of living in Australia

In light of this, Canstar has provided tips to counter the impact of higher living costs, including interest rates, in the interim.

  1.  Reduce your personal inflation rate
  2.  Challenge discretionary spending
  3.  Claim rewards points
  4.  Ask for pay rise

Reduce your personal inflation rate

Make changes at the checkout to bring down the regular cot of your weekly shop. Try switching from fresh to frozen, and shop by price rather than staying loyal to a brand. Also, use supermarket apps to see what is on special, and use this to plan your meals for the week.

Challenge discretionary spending

The festive season is a double-edged sword as it sees most people spending more often on events and entertainment. Challenging your discretionary spending doesn’t have to be too dramatic but, o-skipping events from time-to-time could counterbalance increase loan repayments, energy bills or groceries.

Claim rewards points.

Many shops, including all of those woned by Coles and Woolworths, allow consumers to stockpile rewards points at the supermarket, department stores, chemist, airlines and other places. Cash these in to help rein in your shopping costs.

Renegotiate your bills

Review all of your bills. This can range from your home or investment property loan to your energy provider, insurances and mobile phone plan. Loyalty rarely pays off.

Ask for a pay rise

As the old adage goes  “If you don’t ask you will never know the answer”. Approach your employer, and Put together solid reasoning and have a figure in mind in case a counter offer is made to you.

End of rate rises not yet in sight

In response to yesterday’s RBA announcement, Damien Roylance, Managing Director of Entourage, noted that most of the major lenders had originally predicted rate rises to peak this month.

However, given that inflation is still growing, there is a good chance this isn’t the end of this round of rate rises.

“Revised predictions by the big four are now estimating stabilisation by between Feb and May 2023, with a peak of 3.85% predicted by Westpac,” he said.

So, how can Australians tackle inflationary pressures on their home loans?

Adding to the advice from Canstar, Mr Roylance said that one of the biggest things that can be done right now is to try and pump extra repayments into your savings, redraw or offset accounts.

“By doing so, you’re paying your future self and setting those funds aside for the very real chance of even higher interest rates,” he said

“Most borrowers don’t tend to max out their borrowing capacity, with good incomes and low unemployment most households are in a good place to keep putting aside funds on top of their repayments.

Damien Roylance, Entourage

“Discretionary spending is also something that most people will need to drop back to ensure their essential spending is covered – this means less food delivery and more home cooked meals.”

For those struggling, Mr Roylance said there are options available, such as asking your bank for a better rate or seeking hardship support, as the worst-case scenario.

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