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 it is expected to 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 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 per cent by the middle of 2023.
Westpac chief executive of consumer and business banking Chris de Bruin insists it’s merely a natural revision that most will be able to 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 per cent are unsure if they will be able to afford the increase.
Rate Rise Calculator Of the 2334 adults surveyed by Canstar, about 30 per cent said they would not be able to afford monthly home loan repayments or rent if the average variable rate shifted from 3.16 per cent to 5.31 per cent, in line with a cash rate increase to 2.5 per cent.
Such a rise would increase repayments on a 30-year $500,000 loan by almost one-third, climbing by $629 to $2780 per month.
Canstar finance expert Effie Zahos said 55 per cent of the people surveyed ahead of Tuesday’s decision said they either couldn’t afford – or didn’t know if they could afford – such a jump.
Nearly one fifth could afford it, but they would need to skimp on other costs to get by.
“Consumers are being hit with higher costs from every side right now,” Ms Zahos said.
“Canstar’s survey gives a good indication that there is little wriggle room left in household budgets.”
Canstar’s survey also found 60 per cent of Australians thought their wages wouldn’t go up enough to cover both rising housing and living costs, while 22 per cent 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.
“While interest rates don’t have a direct impact on rental values they do have some indirect consequences, which could see rental prices move even higher.”
Despite higher living costs placing additional strain on household budgets while wage growth remains slow, 40 per cent of Australians are in favour of lifting interest rates, while 34 per cent disagree and 25 per cent are unsure.
The top response among those in favour of lifting interest rates was that the Reserve Bank should be lifting interest rates to help lower inflation and ease the cost of living in time (18 per cent), while 12 per cent 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 own pocket and trying to see a bigger picture for the economy, with Canstar’s findings showing Australians understand that to tackle inflation, interest rates must rise.
“Higher 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 2.30pm AEST on Tuesday.