Australians to feel cost-of-living pinch with more RBA rate hikes and IAG raising insurance prices
The huge bill bomb about to explode in Australians’ wallets: why you pay even more for a house and car
- IAG is going to raise home insurance prices
- Auto premiums are also expected to rise
- Economists predict more rate hikes
A huge cost-of-living blow hits Australia with insurance companies raising the price of home and car insurance, while economists predict more rate hikes from the Reserve Bank.
Insurance Australia Group has announced it is raising the cost of home insurance by 20 percent and motor insurance by 14 percent.
The insurance company, which owns major insurance brands including the NRMA and CGU, claimed cost pressures were to blame for the rapid price increases.
“Returns have been quite challenging in our industry over the past few years,” CEO Nick Hawkins told the Australian financial statement on Wednesday.
“We’re trying to give it a reasonable return, in our opinion, considering the changes in material input costs that we and the industry have had over the last 12 to 24 months.”
Mr Hawkins admitted that this was the fastest sequence of price increases he had seen in his entire career.
Other insurance companies have increased home insurance premiums by as much as 10 percent in the past two years.
IAG’s announcement comes on top of the latest rate hike by The Reserve Bank last week – the 12th hike in just over a year.
The central bank raised cash rates by another 25 basis points, taking interest rates to an 11-year high of 4.1 percent.
Australians will feel cost of living squeeze even more as insurance companies look to increase home and car insurance due to cost pressures (stock image)
Owners with a $600,000 mortgage will pay an additional $97 per month, with annual payments up to $17,088 as of May 2022.
RateCity warns that those with variable rate mortgages will pay about 7 percent interest when the last rate hike kicks in.
That would add an additional $2,269 in minimum monthly payments to a $1 million floating rate mortgage.
Economists at the Commonwealth Bank think there is at least one more hike of 0.25 percent planned for August, which would bring the cash rate to 4.35 percent.
However, the bank has not ruled out the RBA raising interest rates twice in July and August.
The bank’s economists predict that interest rates will begin to fall from the end of the year or early 2024.
ANZ economists have also forecast a 25 basis point rise around August and, like the Commonwealth Bank, say the RBA could also commit to more rate hikes.
The Reserve Bank raised cash rates by another 25 basis points last week, pushing interest rates to an 11-year high of 4.1 percent (pictured, RBA Governor Philip Lowe)
Despite the rapid rise in interest rates, Australia’s property market is already recovering, with data from CoreLogic showing house prices rising in every state and territory capital in May (pictured, properties in Brisbane)
Borrowers are grappling with the most severe pace of rate hikes since 1989, with inflation reaching 6.8 percent in April, more than double the RBA’s target of 2 to 3 percent.
More rate hikes to curb inflation also increase the risk of a recession – something not seen in Australia since 1991 due to rate hikes.
However, the Australian property market is already recovering, with CoreLogic data showing house prices in every state and capital rising in May.
Sydney, where more migrants are moving to live, saw the biggest increase at 2.1 percent, pushing the median house price to an even more unaffordable level of $1.294 million.
New ABS data released on Thursday also showed that 387,000 new migrants moved to Australia in 2022 during a rental crisis.
Australia’s population growth rate of 1.9 percent was also by far the highest in the developed world and was at its highest level since December 2008 during the global financial crisis.