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The RBA's latest rate hike could potentially push people into more financial hardship, a broker has warned.
The Reserve Bank of Australia (RBA) has lifted the cash rate by 25 basis points (bps) to bring the official cash rate to 4.1 per cent from 3.85 per cent in its 12th cash rate hike since the central bank began raising rates in May 2022.
This marks first time the official cash rate has sat above 4 per cent since April 2012, when it was at 4.25 per cent.
RBA governor Philip Lowe said on the decision: "The Board is still seeking to keep the economy on an even keel as inflation returns to the 2–3 per cent target range, but the path to achieving a soft landing remains a narrow one. A significant source of uncertainty continues to be the outlook for household consumption."
"The combination of higher interest rates and cost-of-living pressures is leading to a substantial slowing in household spending. Housing prices are rising again and some households have substantial savings buffers, although others are experiencing a painful squeeze on their finances."
Mr Lowe continued: "Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.
"The Board will continue to pay close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that."
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Speaking after the rate decision, the director of brokerage Zippy Financial, Louisa Sanghera, said people are “really feeling the rate rises now”.
“They weren’t happy as the rates started to rise but they were coping.
“However, the last two rises have really started to put clients under financial pressure. Today’s rate hike is going to tip some people in hardship for sure.
“People are using their savings to live and that will only last them so long. Our investors are being hit big time, with multiple properties, they’ve got increases across multiple mortgages and I think you’ll see more investors put their properties on the market in the coming months if the rate hikes don’t stop,” Ms Sanghera said.
Similarly, the CEO of aggregation group Finsure, Simon Bednar, said the lift in inflation in April has put the RBA back on alert after inflation seemed to be under control and the cash rate neared its peak.
Furthermore, Mr Bednar stated the FWC’s decision to lift award rates is also expected to add to inflationary pressures in the future.
“We may need to brace for at least a couple more increases to the cash rate.
“Official rates look likely to hit 4.35 per cent during the second half of the year though the RBA may then keep rates on hold until Christmas.
“If inflation can be contained over the next 12 months, we could see the RBA lower the cash rate again during 2024,” Mr Bednar said.
Mortgage Choice CEO Anthony Waldron said: “The Reserve Bank’s decision to raise the cash rate shows that it believes more needs to be done to stop inflation.”
“Most borrowers have been happy to keep their rates variable throughout the year, and this continued in May," the brokerage head said.
“Mortgage Choice home loan application data shows that over the month, 93 per cent of borrowers chose variable rate home loan products, compared to just 7 per cent who fixed their rate,” Mr Waldron added.
Mark Haron, the executive director of aggregator Connective noted that another rate increase from the RBA would "impact the economy and the property and lending sectors uniquely, more borrowers will need to make informed, complex decisions to protect their financial security - and brokers have a crucial role to play".
“Sustained rate increases have made it harder than ever for brokers to find ‘cheaper’ rates for clients as fixed rate terms expire for thousands.
"Adding complexity to this challenge is the increasing risk of becoming a ‘mortgage prisoner’ where borrowers are prevented from moving to a new lender when their fixed rate expires due to not meeting serviceability tests that have changed since they first borrowed," Mr Haron added.
Why move now?
Last month, RBA members flagged that “further increases in interest rates” could still be required, depending on how inflation and the economy evolved, while Mr Lowe voiced concerns over inflation risks, with a particular focus on wages.
Indeed, the latest consumer price index (CPI) data, for the month of April, released by the Australian Bureau of Statistics (ABS) indicated that inflation rose from 6.3 to 6.8 per cent over the 12 months leading to April.
Additionally, the latest business indicators data released by the ABS revealed that wages and salaries rose 1.8 per cent during the March 2023 quarter, while the Fair Work Commission (FWC) made the decision to increase award rates of pay by 5.75 per cent as of 1 July 2023.
In the lead up to today’s decision, the major banks cautiously predicted the RBA to hold the cash rate, with the exception of ANZ, who favoured a June rate rise after updating its terminal cash rate to 4.35 per cent by August.
Preceding the June decision, Roy Morgan chief executive Michele Levine warned that the number of mortgage holders “at risk” of mortgage stress could exceed 1.4 million if the cash rate increased in June after it revealed that the number of “at risk” Australians rose by 529,000 over the past year, coinciding with consistent rate hikes over this period.
In addition, the impending fixed-rate cliff has arrived, with the majority of fixed-rate loans set to expire between June and September 2023.
The RBA stated around one-third of the outstanding housing credit are for fixed-rate loans, and estimated that around $350 billion (over 800,000 loans) will roll off this year.
More to come.
[RELATED: The fixed-rate cliff arrives]
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