A large percentage of Australians are being put off applying for loans due to interest rate rises according to a new survey, and only a small number think interest rate increases have peaked.
A survey of 1,010 people conducted by Money.com.au found 70% of Australians say rising interest rates would have put them off a home, car or personal loan if they had been in the market for one.
Younger Australians were more cautious than the other age groups surveyed, with 58% of 18 to 30-year-olds agreeing that they would have been put off from getting a home loan over the last year.
This compared with 50% of those aged 31 to 50 and just 34% of over-50s, indicating younger buyers lack the financial assurance to secure higher rate payments, or are holding out for house prices to drop.
The survey also found that only 15% of Australians believe that rates have almost peaked and will start to come down this year, which may lead to continued subdued appetites for new lending.
Mortgage broker Elodie Blamey (pictured above left), of Clover Financial Solutions in Victoria, said customers she was seeing in her business right now were “a bit more hesitant” about new lending at the moment.
“We had a big influx of purchase activity in December, January and February this year,” Blamey said. “That has calmed down now, and we are now getting a lot of cashback-related inquiries.”
This is leading to Clover Financial Solutions repricing customers on to lower interest rates with existing lenders, and if that is not possible, looking at refinancing options for these customers.
“What we are noticing is that people who already have a loan are more willing to take one out, and that those who do not already have a loan are probably less willing,” Blamey said. “Customers are also asking better questions, which is really great.
“In 2020 or 2021, our customers were more likely to just ask us how much they can borrow – they were asking more generic questions. Now, they’re more interested in asking how their borrowing is going to impact them, how their life is going to be impacted by the loan.
“We’re having more educated discussions, and they are listening to us a lot more.”
Interest rate expectations could dampen lending appetite
A vast majority of Australians share the view that interest rates will continue to trend upwards this year, with only 15% of those surveyed in the Money.com.au survey believing that they will actually be on the way down soon.
A total of 37% of respondents believe the RBA will hold the cash rate for at least another month this year, which includes 18% that believe the cash rate won’t move again on May 2.
However almost a quarter of the market (24%) see April’s rate hold as more of an anomaly, and a decision that will quickly be put in the past by continued rate rises over the next few months.
The survey also found 60% of Aussies now do not trust the RBA to get the balance right between interest rates, inflation and the ability of Australians to afford their loan repayments.
Licensed financial adviser and Money.com.au spokesperson Helen Baker (pictured above right) said the background was the RBA “went against their promises after saying they wouldn’t touch rate rises until 2024”.
“It is understandable that the public is confused and lacking trust in the institution,” Baker said.
She said the RBA was “now under a lot of pressure for their upcoming review in May”, and speaking to an expert or doing research could help borrowers better decide on a fixed or variable rate.
“If the RBA do end up increasing rates throughout the year a fixed rate may be more advantageous, but if they suddenly come down, borrowers could be left high and dry.”
Borrowers find it hard to get a loan even if they want one
Blamey said that many borrowers were facing the problem of reduced borrowing capacity, meaning they couldn’t get a loan even if they wanted one.
“Some people who could get a loan in 2020 or 2021 are coming back to us as rates are going up and asking if they can refinance, and we are having to say that unfortunately we can’t do it,” she said.
“People who are on a $150,000 income, for example, just can’t borrow as much as they think they might be able to borrow. Someone that could borrow $1 million two years ago might now be struggling to service their loan due to the continued rise in interest rates.”
Clover Financial Solutions is even working through deals with clients assuming further decreases in borrowing capacity, due to uncertainty over just how high rates are going to go this year.
Baker said “there’s no doubt a sizeable proportion of households are experiencing financial hardship in this environment”, and some might be choosing to consolidate debts with personal loans.
“For those seeking ways to manage their debts – for example, individuals with multiple credit card debts – it might be preferable to reorganise debts into one regular payment, but borrowers must ensure they are committed to making these repayments,” Baker said.
“For those with no surplus income, finance could be their only option if they need a new car for work, for example. But in these instances, I’d advise taking serious caution and only taking out a loan to which you can comfortably pay off.”
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