Another RBA rise could push mortgage burden near 1989 peak
Australian mortgage pressure could move to within 0.1 percentage point of its 1989 record if the Reserve Bank of Australia raises the cash rate again, according to analysis cited in the report.
Repayments on a median-priced home would absorb 37.4 per cent of a typical household’s income after another increase, compared with the record 37.5 per cent reached in December 1989. The estimate was compiled by economists at real estate platform REA.
The scenario assumes the RBA lifts the cash rate from 4.6 per cent to 4.85 per cent. That would push the average mortgage interest rate to about 6.75 per cent.
Deloitte Access Economics estimated that a borrower with an average-sized owner-occupier loan would then pay about $9,000 more in annual interest than a year earlier.
Repayment pressure is already setting state records
The REA research was based on a 30-year loan and a 20 per cent deposit. It found mortgage repayments were already at record highs as a share of household income in Queensland, South Australia and Western Australia.
The RBA’s latest increase took the cash rate to a 15-year high of 4.6 per cent. The report said consumer confidence had weakened to levels not seen since the early 1990s recession.
Further increases remain possible rather than certain. In The Australian Financial Review’s quarterly survey, 16 of 37 economists expected the RBA to deliver at least one more rise. Financial markets had assigned a one-in-three chance of an increase as early as the November 2-3 meeting.
HSBC chief economist Paul Bloxham said the figures illustrated how monetary policy was restraining household spending through higher repayments. He argued that fiscal policy should carry more of the inflation response because it could be targeted more precisely than interest rates.
Higher rates continue to restrict borrowing capacity
REA economist Luc Redman said falling home prices had not been sufficient to offset the decline in borrowing capacity caused by higher rates, leaving housing affordability under further pressure.
Treasurer Jim Chalmers said the growing repayment burden also reflected the long-term increase in property prices. The report said Australian house prices had risen 540 per cent since 1989 and had increased at almost twice the pace of household incomes over that period.
The figures indicate that lower property values do not necessarily restore affordability when higher interest rates are simultaneously reducing how much buyers can borrow.
Inflation policy becomes a political dividing line
Chalmers said the government’s budget changes were intended to help more people enter home ownership. He also argued that the opposition’s spending commitments would add to inflation.
Shadow treasurer Tim Wilson disputed that position, saying continued growth in government spending was contributing to inflation and forcing the RBA to keep rates higher. Both statements were political claims made in response to the mortgage analysis.
Deloitte Access Economics partner Stephen Smith said the central bank was finding inflation harder to reduce because some major drivers, including heavy investment in data centres and government spending, were not especially sensitive to higher interest rates.
The report also cited polling showing that voters were increasingly concerned about economic management as mortgage repayments and cost-of-living pressures intensified.
SOURCE ATTRIBUTION:
Based on reporting by Michael Read for The Australian Financial Review.
