Home borrowers to cut spending after Reserve Bank raises cash rate

“We know from our own consumer sentiment survey that most Australians expected rates to rise over the next year,” he said.

“And over a third expected rates to move by more than a percentage point. and the magnitude of the change in rates.

He said households had racked up about $250 billion in savings since the pandemic hit thanks to government stimulus measures and reduced spending opportunities. But once post-lockdown spending normalizes, interest rate hikes will slow consumer spending.

He also warned that housing markets were at the start of a correction as rate hikes affected buyers’ ability to borrow.

Croydon owner Bridgitte Vogt said rising interest rates mean she will have to reconsider spending.

“I should cut some things and see what expenses I could cut,” the 36-year-old said.

Melbourne owner Bridgitte Vogt braces for higher interest rates.Credit:Luis Enrique Ascui

“The entertainment budget, I think, should take a hit.”

The single parent of a child works three jobs, including in retail, as a receptionist and sales representative, as well as a judge at bodybuilding competitions.

Loading

She is likely to consider whether she can get a better interest rate on her mortgage, but is happy with her current deal through loans.com.au. It also has a rainy day fund in case interest rates rise to high levels.

“Everything has increased. I’m lucky to have a stash of cash that I’ve put aside just in case,” she said.

“I don’t want to dip into these emergency funds just to pay my mortgage.”

Home borrowers who have had their mortgage for years are better prepared than recent buyers. Many of those who borrowed when interest rates were higher have maintained their repayments as rates have fallen.

About 40% of variable rate borrowers would not have to increase their regular monthly repayments to cope with a 2 percentage point increase in interest rates, according to a study by the Reserve Bank.

But about a quarter of variable rate borrowers will face a more than 30% increase in their repayments under this rate hike scenario.

Rising interest rates will put downward pressure on house prices.

Rising interest rates will put downward pressure on house prices.Credit:Photo: Joe Armao

CoreLogic research director Tim Lawless said it was the first of many interest rate hikes that banks would pass on quickly, if not immediately, and warned borrowers to budget for the costs. higher mortgages.

“Lenders will focus on maximizing their profits. Anyone with a mortgage should expect it to go through the banks as soon as possible,” Lawless said.

“Anyone with floating rate debt should be budgeting for interest rates that are way higher than they are now.”

The Reserve Bank noted in its meeting minutes that business surveys suggest larger wage increases are happening at many companies now.

“It’s the silver lining,” Lawless said.
The Morning Edition newsletter is our guide to the most important and interesting stories, analysis and ideas of the day. register here.

Comments are closed.