Nearly one in three Aussies who borrow or rent say they won’t be able to afford housing costs if the Reserve Bank raises interest rates by as much as expected in the coming months.
On Tuesday, the central bank is widely tipped to add another 40 basis points to its target cash interest rate as it tries to take the hiss out of an overheated economy and curb runaway inflation.
It would be the second rise in five weeks and — if ANZ economists are right — just the start of a steep slope to a 2.5% spot rate by mid-2023.
Camera icon Of the 2,334 adults surveyed by Canstar, about 30 percent said they would not be able to pay their monthly mortgage or rent payments if the costs were as high as expected. Credit: istock
Chris de Bruin, Westpac’s CEO for consumer and investment banking, insists it’s just a natural overhaul most will be able to afford after a long period of the emergency policy.
But new research shows that nearly a third of Australian renters and borrowers can’t afford the potential increase in housing costs, and another 25 percent aren’t sure they can afford the increase.
Interest Rate Rise Calculator Of the 2,334 adults surveyed by Canstar, about 30 percent said they would be unable to pay the monthly payments or rent on their homes if the average variable rate shifted from 3.16 percent to 5.31 percent, in line with a cash rate increase to 2.5 percent.
Such an increase would increase repayments on a $500,000 30-year loan by nearly a third, from $629 to $2780 per month.
Canstar’s finance expert Effie Zahos said 55 percent of those surveyed ahead of Tuesday’s decision said they couldn’t afford such a jump or didn’t know if they could afford it.
Nearly a fifth could afford it, but they would have to skimp on other expenses to get by.
Camera IconThe results of Canstar’s latest research. Credit: Included
“Consumers are currently being hit from all sides by increased costs,” Ms. Zahos said.
“Canstar’s research indicates that there is still little room for maneuver in household budgets.”
Canstar’s survey also found that 60 percent of Australians believed their wages would not rise enough to cover rising housing and living costs, while 22 percent were unsure.
Less than a fifth believe their wages will increase in line with these costs.
“Australians are seeing price increases for several household bills,” Ms. Zahos said.
“When you’re faced with increased costs on every household bill, it can become difficult to juggle the extra costs as consumers have to be efficient with where they channel any savings.”
“It’s not just homeowners who struggle with higher loan repayments.
Camera icon Sixty percent of Australians believe their wages will not rise enough to cover rising housing and living costs. NCA NewsWire/Dylan Coker Credit: News Corp Australia
“While interest rates don’t directly affect rental values, they have some indirect effects, which could drive rents even higher.”
Despite higher costs of living putting additional pressure on household budgets while wage growth remains sluggish, 40 percent of Australians favor raising interest rates. In comparison, 34 percent disagree, and 25 percent are unsure.
The main response among those in favor of raising interest rates was that the Reserve Bank should raise interest rates to help lower inflation and lower the cost of living promptly (18 percent), with 12 percent saying higher interest rates for retirees would help cover higher living costs through higher savings rates.
“It’s interesting to see Australians appreciate the importance of higher interest rates,” Ms. Zahos said.
“They are looking beyond their own pockets and trying to see a bigger picture for the economy, with Canstar’s findings showing Australians understand that interest rates need to rise to tackle inflation.
“Higher interest rates will pressure mortgage-backed households – no doubt homeowners will hope it won’t take too many rate hikes to strike a balance needed to curb inflation.”
Governor Philip Lowe’s June RBA policy announcement will be released Tuesday at 2:30 p.m. AEST.