Yahoo Finance RBA keeps rates on hold: Mortgage holders fear future hike
The Reserve Bank of Australia (RBA) has left interest rates on hold at a record low 0.1 per cent, but the threat of a hike this year is growing.
RBA governor Philip Lowe acknowledged the growing pressure on the central bank to hike rates as inflation pressures have grown.
“Inflation has increased sharply in many parts of the world. Ongoing supply-side problems, Russia's invasion of Ukraine and strong demand as economies recover from the pandemic are all contributing to the upward pressure on prices,” Lowe said in his statement.
“In response, bond yields have risen and expectations of future policy interest rates have increased.”
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Lowe said that the bank was watching data on wages and inflation closely before making its next decision in May.
“Over coming months, important additional evidence will be available to the Board on both inflation and the evolution of labour costs,” he said.
“The Board will assess this and other incoming information as its sets policy to support full employment in Australia and inflation outcomes consistent with the target.”
How would a rate rise impact my mortgage?
Research from RateCity found 31 per cent of Australian mortgage holders said they would have to make “significant” cutbacks to afford a rise in their mortgage repayments.
The analysis found the average borrower with a $500,000 owner-occupier loan and 25 years remaining could see their repayments rise by $303 per month by next February, if CBA’s rate-hike predictions are realised.
“While most Australians will be able to take these rate hikes on the chin, not everyone will be taking them in their stride,” RateCity research director Sally Tindall said.
“Many variable borrowers will have to put their expenses under the microscope to see where they can trim the fat.”
The latest APRA figures show 24.4 per cent of mortgages settled in the December quarter had a debt-to-income ratio of six times or more which, although considered risky by the regulator, was the price many Australians had to pay to get into an overheated housing market.
“People who overstretched themselves to get into the property market recently could feel the heat of the upcoming rate hikes,” Tindall said.
“While the banks have checked these borrowers can meet their mortgage repayments if rates rise by 3 per cent, some families will have to make tough budget cuts to make certain that happens.”
Tindall warned that borrowers who’d had a change in circumstances, like a new baby or change of career, could also struggle to make higher monthly repayments.
“A lot of people who bought recently are already mortgaged to the hilt and the RBA is acutely aware of this,” Tindall said.
“The central bank is not going to hike the cash rate so far and so fast that people start defaulting on their mortgages en masse.”
Cost of living hits households
Despite the central bank leaving rates on hold this month, mortgage holders are preparing for the inevitable.
Rising living costs are hurting the hip pockets of Australians, with an alarming number of people concerned about their ability to afford household bills as a result, according to new research from Canstar.
The nationally representative survey of 2,581 Australian adults found 56 per cent - equivalent to more than 11 million people - were worried they would be unable to afford household bills amid skyrocketing living costs, while an additional 12 per cent were unsure.
When asked about the household bills they were most concerned about, nearly one-third (29 per cent) of Australians said their biggest worry was housing costs, including rent or mortgage repayments.
“Costs keep rising for households, with petrol prices reaching an eight-year high and supermarket shoppers reporting higher grocery bills, but the sting is about to get worse for some,” Canstar group executive, financial services, Steve Mickenbecker said.
“Anyone with a mortgage will likely feel financial pain when the Reserve Bank raises the cash rate this year, as predicted by some of the major banks.”
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