Are Australians increasingly complacent about interest rates?

The “Australian Mortgage and Rent Affordability Survey”, commissioned by the Finance Brokers Association of Australia (FBAA), found that 66% of borrowers and renters would experience some degree of financial pressure – strongly, somewhat or slightly if interest rates were to rise.

FBAA chief executive Peter White was shocked by the survey results – noting his dismay that 57% of people said they would not be able to afford a monthly rent increase or of their $300 mortgage.

Expressing concern that Australians have become complacent after more than a decade of no rate hikes, he said a $300 mortgage or rent increase was equivalent to “just 1% based on the average home loan”.

“One percent is not a big increase. It will happen, and with the RBA’s recent decision not to intervene to stop raising three-year government bond yields, it will likely happen soon.

“Many Australians are clearly on the brink and sleepwalking into disaster, living in the false hope that rates will stay this low,” Mr White continued.

“My message to Australians is that we need to be better prepared.”

While borrowers have rightly taken full advantage of historically low rates and low deposit schemes for home ownership, the chief executive warned this could lead to “a lot of people in trouble”.

“The housing market has soared, and there’s a reasonable chance it will undergo a correction, which means those with low deposits who have stretched to make large repayments could see themselves with funds own negatives, owing more than the value of the property,” he said. warned.

Mr White said that, based on the history of interest rates, the only way now is to rise.

From his point of view, “the housing market is overheating and banks, regulators and the government are already talking about raising the floor rate (a higher rate used to calculate repayments) to slow borrowing”.

Along with recent fixed rate hikes, the manager said all signs point to higher interest rates.

And then it happens; it won’t just be low-income people who will feel the effects, Mr. White pointed out.

Nearly one in two (46%) of respondents who said they could not repay $300 a month reported a combined gross weekly income between $2,000 and $3,000.

So how should Australians prepare for the inevitable rate hike?

While there was no need to overreact, Mr White said, “we must take an honest, balanced and informed approach”.

His advice to borrowers? “Don’t overcommit or go overboard with payday loans, personal loans or credit cards because the rates will go up. Borrowers and tenants must have excess funds to pay an increased amount.

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Mortgages are loans that are used to purchase homes and other real estate where the property itself serves as collateral for the loan.

About the Author

Grace Ormsby

Grace is a reporter for real estate and investment brands Momentum. Grace joined Momentum Media in 2018, bringing with her a Bachelor of Laws and a Bachelor of Communications (Journalism) from Newcastle University. She is passionate about providing easy-to-digest information and relevant content for her key audiences and… Read more

Are Australians increasingly complacent about interest rates?




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Last update: November 17, 2021

Posted: November 17, 2021