With winter well and truly here, the weather has certainly changed. Lending base rates on the other hand, continue to remain the same.
Last month, the Reserve Bank of Australia (RBA) announced that the base interest rates will not change, with the historic low of 1.5 per cent remaining unchanged for the 22nd consecutive monthly meeting.
So, what does this mean for Australians? Are we all going to get out of the debt woods soon? Or are we still struggling?
At Life After Debt, we believe that regardless of the historically low interest rate remaining unchanged, Australians may still be struggling.
Let’s have a look at some of the main reasons why.
Household Income & Spending
One continuing source of uncertainty is the outlook for household consumption – Household income has been growing slowly and debt levels are high.
While increased government spending on infrastructure and a stronger contribution from the export sector has helped boost the RBA’s confidence, household spending remains a worry, with hourly earnings growing at the slowest rate in decades!
Along with this, borrowers are unable to rely on rising income to reduce debt repayments, as they had in the past.
And as a result, Australia’s debt-to-income ratio is astronomical…The ratio of household debt to disposable income has almost tripled since 1988, from 64 per cent to a staggering 200 per cent! That’s almost $100,000 for every man, woman, and child! Read more on this topic here.
The Mortgage Debt Trap
With interest rates at a historic low, many Australians have been scrambling over each other to snap up property, and fast.
The reality is though, that regardless of how low the interest rates are, many Australians cannot actually afford to take on such debt in the first place.
In fact, statistics show that one in five Australians are walking such a fine tightrope, that if interest rates were to rise by even as little as 0.5 per cent, they could lose their homes altogether– Scary, right?!
What’s more, we believe that the widespread assumption that interest rates will remain at historic lows is a disaster waiting to happen, especially in an environment where wage growth is so stagnant.
Tighter Lending Conditions
In a statement issued the RBA, they acknowledged that lending conditions were likely to tighten.
Why? Because the RBA believes they need to pay close attention to trends in household borrowing, given the already high levels of debt.
That would mean the ‘progress in reducing unemployment and having inflation return to target’ would be even more ‘gradual’ than the RBA expects.
As you can see, the historically low, unchanged interest rate, doesn’t necessarily mean that Australians are out of the debt ‘woods’, nor that they will be getting out of them anytime soon.
But don’t worry, tighter lending conditions are definitely a step in the right direction and there are people out there to help you manage your debt and relieve some of your financial stress.
At Life After Debt® we have offices in Perth and Sydney; we can help you reduce your debt and avoid bankruptcy by offering affordable, practical financial solutions, proven to relieve hardship.
We provide honest and sympathetic, without judgement advice, proving there really is Life after Debt ®
Contact us to see how we can help you today.