A third consecutive rate hike from the Reserve Bank of Australia landed this week… like a bolt of lightning.
The impact was devastating …
Combined with stubborn inflation, volatile oil prices and ongoing cost-of-living pressures, it’s the latest blow in a long stretch of them. For Australians already struggling with mortgage repayments, tenants drowning in rent rises, and those trying desperately to buy their first home, it’s left many with their heads in their hands.
I was hoping the RBA might take a “wait and see” approach and hold rates because of this compounding pressure, but nope.
So, what now?
For starters, we need to stay calm. Panicking never helps. Next, we need to make a plan for our individual circumstances. Because while we can’t control interest rates, we can control how we respond to them.
Here’s my practical guide depending on where you’re at right now.
For mortgage holders: chase your own rate cut
Plenty of households who were managing OK a year or two ago with their loan repayments are now under mortgage stress.
To put this latest hike into perspective, someone with an average mortgage of around $736,000 could now be paying roughly $117 more per month after this increase alone – that’s about $1,400 extra a year in repayments, on top of previous hikes and broader cost-of-living pressures that have already pushed many households to the edge.
Here are a few ways to seek some financial relief:
- Chase your own rate cut – Review your mortgage immediately. A quick call to your lender asking for a better deal could save thousands. If they won’t do a deal, refinancing may be worth exploring.
- Boost your offset account – Keep savings in offset to reduce interest while retaining access to cash. Cut costs where possible: pause subscriptions, reduce driving to save on petrol, or sell unused items and redirect funds into your loan.
- Build an emergency fund – Having a buffer for unexpected costs is financial shock absorption. Expenses can quickly become credit card debt without one.
- Audit every major household bill – start with your insurances… home and contents, car, private health… and then on to energy, mobile, data and credit cards. Make sure you’re on the best deal. There are comparison sites which make this so easy and the savings can be huge.
- Speak up early – If repayments are becoming unmanageable, contact your lender now. Hardship teams exist for a reason… to help borrowers doing it tough.
- Earn more – It sounds obvious, but look at ways to increase your earnings: a pay rise, promotion, upskilling, or side incomes like freelancing, Uber driving after work or selling things you no longer need.
For renters: don’t just absorb every increase
Renters have been under enormous pressure for years, and many feel trapped between rising rents and limited options.
The national median rent is now around $580-$600 a week. In Sydney, it sits in the mid-to-high $700s, edging close to $800 in some areas. That means even a $50 weekly increase adds about $2,600 a year.
And you can bet landlords will pass on this latest rate rise. Here’s what to do:
- Ask if it’s fair? – Don’t immediately accept a rent increase. Compare local listings and negotiate if it’s above market, especially if you’re a reliable tenant. You may be able to trade a smaller increase for a longer lease.
- Be open to alternatives – Consider a smaller property, a different suburb, or shared housing to spread cost.
- Build a buffer – Even $25 a week adds up to $1,300 a year, helping cover moving costs or unexpected bills. Think of an emergency fund like a short, focused “crash diet”: tighten spending in the short term to reach an initial goal (say $500), so you can start covering unexpected costs with savings instead of debt.
- Consider moving in with family temporarily – Paying board instead of rent can significantly accelerate your savings, potentially freeing up $20,000+ a year depending on circumstances.
For aspiring buyers: stay in the game
It’s extremely tough out there for first-home buyers. And this latest rate rise feels like the goalposts have moved again – higher interest rates reduce borrowing power, while high living costs make saving a deposit harder.
But this is not the time to give up.
Owning a home one day still represents long-term financial stability and security. So, here’s my words of encouragement:
- Keep saving, even slowly – Don’t give up and keep saving whatever you can. Consistency matters more than you think. Even $100 a week adds over $5,000 a year.
- Revisit expectations – Consider a one-bedroom instead of a two-bedroom property, different suburbs, or regional areas instead of the Big Smoke. Shift from an “ideal” to a “possible” property mindset.
- Consider rentvesting – Buying where it’s cheaper as an investor and then renting where you need to live for work is an alternative way to enter the property market.
- Consider the “boomerang” strategy – Moving back home is increasingly common. Saving about half of $650 rent could build roughly $13,000-$17,000 in a year – a meaningful deposit boost.
- Remind yourself – “This rate rise is a ‘now problem’, not a ‘forever problem’. Markets move in cycles – stay on course.
Softening the blow
Another rate rise is a punch in the guts – there’s no sugar-coating it.
But even in tough financial times, there are still ways to reclaim a sense of control and soften the impact.
It’s not about building wealth overnight. It’s about building financial resilience so you’re better able to handle whatever comes next.
