The Reserve Bank of Australia has delivered its ninth consecutive rate rise, with its board deciding to raise the cash rate by 25 basis points to 3.35% this afternoon.
It also raised the interest rate on exchange settlement balances by 0.25% to 3.25%.
Following a run of rate rises that began in May last year, the RBA confirmed it would maintain its focus on containing inflation by hiking interest rates again this month.
The RBA’s February decision was widely forecast, and most banks and economists are predicting between one and three further rate rises will come by the end of 2023.
RBA governor Philip Lowe said CPI inflation in Australia of 7.8% was the highest since 1990 and in underlying terms a rate of 69% was higher than expected.
According to a poll of 24 economists conducted by the Australian Financial Review, this would see the cash rate peak between 3.35% and 4.1%, with outlying predictions as high as 4.85%.
The decision will make conditions harder for borrowers, who have been forced to adjust their expectations to include significant increases to loan payments over the past year.
Borrowers already feeling rate rise pain
Sam Ayliffe (pictured above left), principal of brokerage Astute Financial Manly in NSW, said while rising interest rates were aimed at reducing spending in the economy, they were now really affecting households.
“I really do hope the RBA is listening and the government is listening, because households are heavily impacted and some at the moment are quite stretched,” Ayliffe said. “I don’t think we’re allowing enough time for past interest rate increases to come to fruition.”
“By going so hard so quickly, by raising interest rates every month, by not allowing things to sit and breathe for three to six months, we’re not able to see the full impact of that.”
He said people were making life-changing decisions, including a client who recently downsized from a $2.5 million property to one worth $1.8 million to help more easily meet loan payments.
Equifax warned signs of stress are beginning to show among borrowers under the age of 45 and this would only get worse as the RBA raised rates and cheap fixed rates loans expired.
Data shows 70% of people who bought property during or shortly after COVID-19 were under 45, a substantial increase on the 40% of buyers in this age bracket buying before this time.
While mortgage arrears impacts have been minor, Equifax said the balances of borrowers in this group were now going in the wrong direction, amortising upwards rather than down.
TSC Mortgage Brokers director Matt Punter (pictured above right), based in Queensland, said he believed business confidence was the biggest issue right now, even more than repayment problems.
“People are quite sensitive and there is definitely some belt tightening going on, but we do look at this closely and we haven’t seen our arrears increasing just yet,” Punter said.
“Uncertainty is the biggest killer at the moment. People are concerned when this is going to end; if they knew where the end was, then they would have some certainty.
“A lot of our clients are self-employed, and we’ve seen them not committing to different things that were previously on their radar, anecdotal examples of them pulling back.”
Punter said data drawn from his own business indicated people had built a reasonable financial buffer because of uncertainty, which was supporting them during rate hikes.
Brokers working to help clients adjust
TSC Mortgage Brokers launched a repricing campaign six months ago, when like other brokers it began to proactively contact existing lenders on behalf of clients seeking discounts on their rates.
Focusing initially on variable rate customers impacted by rate hikes, it has moved on to fixed rate customers, taking into account when their cheaper fixed rate is due to expire.
“We have done that for so many of our clients now,” Punter said.
“It’s such a positive experience for our clients when we call them with good news, saying we’ve just got your rate reduced, letting them know that there are competitive offers in the marketplace, and asking them if they want us to have a look at that for them.”
The business has also increased the frequency of its communications with clients.
“We use a facility called ActivePipe through Finsure. We’ve been using it for three or four years, but now we’re sending out more communications to clients than previously. We want to make sure our clients know we’re here and we’re keen to help in any way we can.”
Punter said it was aiming to support any customers that were looking at refinancing.
“It’s a really active refinance market – I’ve never seen anything like it – and being able to help our clients with that is a huge retention exercise for us as a business.”
Astute Financial is helping customers model what their future repayment amounts will look like, particularly those who will soon be moving off “off-the-charts-cheap” fixed rates, said Ayliffe.
Ayliffe recommends clients put the higher amount into a savings and offset account, and if they are unable to manage that, they will need to look at reducing their spending.
Astute is also approaching customers who have been pre-approved in the last six months and re-qualifying them to ensure that they are up to date with their current lending limits.
“Not only have assessment rates increased since last year, but banks are looking extremely closely at living expenses; they have increased those metrics,” Ayliffe said.
“Someone who might have been able to borrow $1 million last year may only be able to borrow eight hundred thousand this year even though their income is the same.”
Ayliffe said he had been talking a lot to clients about reducing their household spending.
“Household spending is what is driving the cost of everything up. We’re all responsible for our own spending. What we need to do is slow down a bit on all those wants and needs, so the RBA can consider whether it is time to stop raising rates,” he said.
