Home borrowers are set for a bitter Melbourne Cup day with the Reserve Bank widely expected to hike official interest rates yet again, as concerns grow at the impact on those who can least afford it.
Bank chiefs insist most customers are managing to adjust their budgets to make ends meet, or only need temporary mortgage help. But welfare organisations and consumer advocates say the burden is growing and many borrowers are yet to feel the full impact to date.
The expected increase to 4.35 per cent — an 11-year high — would add $76 in monthly repayments for those with the average $500,000 loan — and a whopping $1210 more since rate hikes kicked off in May last year, analysis by RateCity shows.
Of those surveyed by comparison site Canstar, nearly half have lost the ability to contribute any more to mortgage repayments as the weight of high inflation and cost-of-living pressures and rate hikes to date increase.
The Reserve Bank has lifted rates from 0.1 per cent in May last year to 4.1 per cent. Until then, there had been no increase since late 2010.
Finance Brokers Association of Australia managing director Peter White feared another rate hike would “rapidly exacerbate” people needed psychological help and other counselling.
“I understand the need for the RBA to do what they feel is best for the nation economically, but surely as a society we also have to consider the human cost,” he said.
Westpac boss Peter King on Monday — reporting another multi-billion dollar profit — said rates may need to be higher for longer than originally expected because demand in the economy was still high.
All but three of 31 economists surveyed by Bloomberg expect a Cup Day hike, though some say the RBA is powerless to do anything to target the cause of the inflation problems.
“The combination of falling real wages and rising interest rates is having a double impact on households,” said Australia Institute chief economist Greg Jericho.
“It means that the Reserve Bank is not so much dampening demand from growing incomes as keeping households heads below water.”
The RBA is raising rates to push inflation back to its 2 to 3 per cent target from 5.4 per cent now. New governor Michele Bullock has previously defended the scale of rate hikes by warning the impact of high inflation persisting was particularly damaging to people on lower incomes, and that the RBA had to treat the economy as a whole.
“The imperative is to get inflation down because that will help low-income people much, much more,” she said last month.
The persistently high inflation rate is being fuelled by higher energy prices, rents and home construction costs and insurance, while Ms Bullock has also expressed concern at price hikes in other service providers, such as hairdressers and hospitality.
While consumer spending has come down, some pockets are remaining high and the RBA is also concerned about what it calls the “wealth effect” from high property prices — that the longer property prices are increasing, the more homeowners feel financially comfortable.
Bank officials have also previously discussed the need to show it is serious about getting inflation back to target, and that keeping rates on hold for an extended period could suggest rate hikes were over and its inflation battle won.
Financial markets rate a Cup Day hike as a 50 per cent chance. A hike by the RBA would follow pauses from the US Federal Reserve and the European Central Bank at their most recent meetings.