Almost one in three Aussies who are borrowing or renting say they won’t be able to afford housing costs if the Reserve Bank lifts the interest rate by as much as expected in the coming months.
The central bank on Tuesday is widely tipped to add another 40 basis points to the target cash rate as it attempts to take the sizzle out of an overheated economy and rein in runaway inflation.
It would be the second rise in five weeks and – if ANZ economists are correct – just the beginning of a steep ramp to a cash rate of 2.5 percent by the middle of 2023.
Camera IconOf the 2334 adults surveyed by Canstar, about 30 percent said they could not afford monthly home loan repayments or rent if costs go as high as expected. Credit: istock
Westpac chief executive of consumer and business banking, Chris de Bruin, insists it’s merely a natural revision that most can afford following an extended period of emergency policy settings.
But new research shows almost one-third of Australian renters and borrowers can’t afford the potential ramp-up in housing costs, and a further 25 percent are unsure if they can afford the increase.
Rate Rise Calculator Of the 2334 adults surveyed by Canstar, about 30 percent said they could not afford monthly home loan repayments or rent 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 a rise would increase repayments on a 30-year $500,000 loan by almost one-third, climbing by $629 to $2780 monthly.
Canstar finance expert Effie Zahos said 55 percent of the people surveyed ahead of Tuesday’s decision said they either couldn’t afford – or didn’t know if they could – such a jump.
Nearly one-fifth could afford it, but they would need to skimp on other costs to get by.
Camera IconThe results of Canstar’s latest survey. Credit: Supplied
“Consumers are being hit with higher costs from every side right now,” Ms Zahos said.
“Canstar’s survey indicates little wriggle room left in household budgets.”
Canstar’s survey also found 60 percent of Australians thought their wages wouldn’t go up enough to cover rising housing and living costs, while 22 percent were unsure.
Less than one-fifth feel their wages will increase in line with these costs.
“Australians are seeing price hikes across several household bills,” Ms Zahos said.
“When you get hit with higher costs on just about every household bill, juggling the extra costs can become difficult, as consumers need to be efficient with where they redirect any savings.”
“It’s not just homeowners doing it tough through higher loan repayments.
Camera IconSixty percent of Australians think their wages won’t go up enough to cover rising housing and living costs. NCA NewsWire / Dylan Coker Credit: News Corp Australia
“While interest rates don’t have a ddirectdirectlyiimpact, they do have some indirect consequences, which could see rental prices move even higher.”
Despite higher living costs placing additional strain on household budgets. At the same time, wage growth remains slow, 40 percent of Australians favor lifting interest rates, while 34 percent disagree, and 25 percent are unsure.
The top response among those who favor lifting interest rates was that the Reserve Bank should raise interest rates to help lower inflation and ease the cost of living (18 percent). In comparison, 12 percent said higher interest rates would help retirees cover increased living costs through higher saving rates.
“It’s interesting to see Australians value the importance of higher interest rates,” Ms Zahos said.
“They’re looking beyond their pocket and trying to see a bigger picture for the economy, with Canstar’s findings showing Australians understand that to tackle its must rise.
“Higher I to tackle inflation interest rates will put pressure on households with mortgages – no doubt homeowners will be hoping that not too many rate hikes will be needed to find the balance needed to rein in inflation.”
The June RBA policy announcement from governor Philip Lowe will be released at 2.30 pm AEST on Tuesday.