Recently we wrote about base interest rates, with the historic low of 1.5 per cent remaining unchanged for the 22nd consecutive month.
The latest headline? Up to 1 million Australian households ‘on the edge’ of mortgage default by September.
It’s a scary statement and comes from a warning by principle independent analyst, Martin North of Digital Finance Analytics. His warning is based on the uncertainty of the big four banks doing what many fear they will do – increase their standard variable rates to an average 0.15 percentage points over the next few months.
As unsettling as this topic may be, we feel it’s important for fellow Australians to be in the know.
What else are the experts saying?
In his statement, Martin North said: “I’m almost certain they’ll be forced to lift those rates, it’s a question of timing, and of course the political reaction when it happens.” Mr. North’s firm surveys thousands of households to gauge their financial situation and has found, alarmingly that many have little to no buffer to meet increased expenses. “Today 975,000 households across Australia with owner-occupier mortgages are right on the edge now,” Mr. North said.
“And there are around 50,000 who are already over the edge and are looking like they could default. If rates went up by 0.15 percentage points, that would go up closer to the round million.”
What about the Reserve Bank?
As we touched on earlier and detailed in a recent blog post, the Reserve Bank has made it clear it is in no hurry to raise interest rates. However, it’s important to note that Australia’s banks do not just follow the Reserve Bank’s moves on rates; they are also dependent on interest rate rises in other money markets, so we can’t always look to what the Reserve Bank is doing.
What will Commonwealth Bank do?
As Commonwealth Bank is Australia’s biggest home loan provider, it’s only natural that we want to find out what they will do. The ABC asked the bank’s chief economist, Michael Blythe, if he could shed some light on when the CBA would make its move on interest rates.
“Well look, all banks are facing the same issue,” Mr. Blythe said. “Part of that funding pool that they draw on, be it domestically or overseas, we have seen some upwards pressures on interest rates in those areas.”
The Key Points
- A significant portion of Australia’s banks have already started to lift their interest rates.
- An increase of 0.10 percentage points would mean paying about an extra $60 a month on a $750,000 mortgage.
- Some analysts expect increases around 0.15 percentage points.
- The cost of borrowing money domestically is also rising.
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