Interest rates

A shocking level of Aussie households with mortgages are in trouble even before interest rates are hiked, with 42 per cent financially stressed in March, ...

Four out of the five electorates with the highest number of households under mortgage stress are held by Labor, the DFA found, including the seat of Brand in WA, Franklin in Tasmania, Hunter in NSW and Hawke in Victoria. Stream more finance news live & on demand with Flash. 25+ news channels in 1 place. Queensland is the only state where less than 40 per cent of households are under mortgage stress across the country. If interest rates go up by 1 per cent it would see close to 322,000 additional households experiencing mortgage stress, while a 3 per cent rise would result in 933,000 more households under mortgage stress compared to current levels, the DFA said. Tasmanians are most likely to be under mortgage stress at 56 per cent of households, while close to 500,000 Victorians are facing the same scenario, DFA found. New to Flash? Try 1 month free.

Even if the United Australia Party was able to force banks to cap mortgage rates at 3 per cent, it would lead to many being denied a home loan, writes Isaac ...

There used to be some limits on the dishonesty of the political parties and the candidates but there seem to be no limits this election. Please click below to help InDaily continue to uncover the facts. Paying even a small share of the interest payments would be an enormous burden on the budget. In a recent podcast interview with Michelle Grattan, independent MP Andrew Wilkie mentioned this UAP ad, saying: “In my opinion, this is the worst campaign I’ve observed, as far as the mud slinging and the dishonesty. Even if they can squeak a small profit margin they may only write mortgages for the wealthiest and safest Australians to lend to. You’d see hugely higher prices at the supermarket and the fuel pump. In other words, a 3% cap on interest rates would lead to a situation where either banks stop mortgages entirely or greatly restrict them. Banning the RBA from pushing up rates comes with real inflationary risks. If lending dried up, the number of house buyers would plummet, which would devalue homes. The government did control interest rates for many years, until deregulation in the Hawke years. They frequently diverge from the cash rate based on their cost of obtaining funding from Australian savers and from overseas. The banks will just stop writing mortgages entirely.

A sold sign on an Adelaide house. Analysts are worried about what multiple interest rate rises will do to Australia's property market. (ABC News: Eric Tlozek).

There's a conga line of investment banks lining up trying to predict the extent of the coming recession. To that heady mix of huge demand and supply shortages, add in a war in Europe that has disrupted energy, food and metals. And with mortgages making up around 60 per cent of our bank's loans, a property crash has the potential to cause a financial crisis. And the fix, having been slow off the mark, increasingly appears to be a series of sudden and very large lifts in interest rates. The end result is runaway inflation. American inflation is accelerating at the greatest pace in 40 years. And why it will be far more cautious in hiking rates than the horror predictions you're hearing right now. On the right, is the trade-off. You can see the impact in both graphs above. But during the past 30 years, the RBA — in association with the banking regulator, the Australian Prudential Regulatory Authority — has helped create one of the globe's biggest asset price bubbles. But we are one of the most egregious examples. Here's a graph the RBA published a few weeks ago.

Research shows approximately 42.2 per cent of households are already in "mortgage stress".

The information has been prepared without taking into account your personal objectives, financial situation or needs. Jobs in some sectors were impacted heavily by Covid and some borrowers might have been living on their savings while getting back on their feet," Ms Baker said. The information provided on this website is general in nature only and does not constitute personal financial advice. "A small proportion might not be proactive savers. A poll of 32 Australian economists showed that more than half believe that Australia's official cash rate will rise to one per cent by the end of September and move to 1.50 per cent by the end of the year. According to the data, an interest rate rise of just 0.5 per cent would see 143,124 additional Australian households impacted by mortgage stress while a one per cent rate rise would impact 321,874 additional households

Analysis: The Reserve Bank of Australia finds itself in a strategic and political bind. Credibility is at stake.

Even so, “I’m just not convinced that the wage number is really going to provide that much additional information,” Henckel says. But the breadth of inflationary pressures now being experienced across the Australian economy “puts the RBA in a position where its credibility would be at serious risk if it doesn’t raise rates [this] week”, Eslake says. “Six months ago, they were saying it wasn’t until 2024.” Instead the RBA had stressed for two years the importance of seeing higher wages. But as Saul Eslake, a high-profile independent economist, reckons: “That data may well show that there hasn’t been a significant pick-up in wages growth.” It’s been clear for months an inflation data dump would land smack in the middle of an election campaign.

A second way in which higher interest rates help to cool inflationary pressures in the economy is the way they change people's decisions to save versus invest.

Higher interest rates increase the appeal to foreign investors of owning Australian dollar denominated assets. The cost of borrowing to invest also goes up because of how much extra money you have to plough into interest payments. Let’s hope you banked some of the savings. But that’s the way of it. Ultra-low interest rates have spurred a massive ramp up in borrowing by households, mostly to fund property purchases. So higher rates diminish some of this “wealth effect”. So, perhaps it’s time for a refresher on how interest rate rises help to cool price pressures in the economy and why that’s good for us all, in the long run. In short, interest rate hikes work via four distinct “transmission channels”, of which the hit to mortgage-holder hip pockets is just one part. It also increases Aussie shopper’s buying power abroad, making imports less expensive, and reducing some costs that way. Well, higher interest rates actually help households with cash savings – such as in term deposits – which can include renters aspiring to be first home buyers, but mostly comprise retirees. The opportunity cost of spending your money today – rather than saving – effectively goes up because you could instead put it in the bank and earn higher interest than before. What about the remaining two thirds of households?

Inflation and a looming RBA decision have many homeowners nervous about making mortgage repayments. Read more, here at mozo.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. Free redraw and free extra repayments. Free redraw and free extra repayments. 100% offset sub account with no account or redraw fees. 100% offset sub account with no account or redraw fees. Free extra repayments and redraw facility. Fast and efficient online application. Free extra repayments and redraw facility. Fast and efficient online application. For example, while most Aussies bank with the Big Four, many online lenders offer more competitive interest rates. “It’s never too late to stress test your ability to make repayments,” Godfrey advises. Home loan owners have been feeling the squeeze lately.

The RBA is considering raising the official cash rate for the first time since 2010 and the outcome will have big ramifications for the federal election.

“There is still good reason for the RBA to wait to June and raise the cash rate by 0.4 percentage points in response to the sustained and broad-based increases in prices,” Sarah Hunter, a KPMG economist said. The currency has already dropped from the mid-70 US cent range to just above 70 US cents. Their view was “marginally in favour of cash rate rise” on Tuesday, although the verdict was only 53:47, Morley said. Why would the RBA hold back despite the CPI coming in at 5.1% for the March quarter? The RBA, though, would also be watching its overseas counterparts. Financial markets, though, have reduced their expectation of a rate rise, according to an ASX tracker. Scott Morrison has tried to blunt criticism that a Tuesday rate rise would be a poor reflection on his government’s economic management, blaming international factors for the high inflation. Staff, other board members and Lowe himself would often make presentations. Labor’s shadow treasurer, Jim Chalmers, meanwhile, says he’s “disappointed” that Frydenberg’s comments undermine the RBA’s independence. “A June increase would allow the RBA to act outside the election campaign, and with the benefit of seeing the wage price index release [on 18 May] before deciding on the size of the upward movement.” The central bank itself says only that “consistent with the Reserve Bank Act, the board makes decisions by a majority of the members present, with the chair having a casting vote”. The treasurer, Josh Frydenberg, also pointed to previous comments by Lowe – including in last month’s board meeting – that the RBA wanted to see inflation and wage data before lifting the rate from its now record low of 0.1%.