Borrowers feeling the pinch and expert predictions
It’s been a week we won’t forget in multicultural Australia, with our focus turned to our decision on the Voice while at the same time coming to terms with the atrocities out of Israel. To add to our somewhat somber mood are the opinions of economists and leading industry experts suggesting that interest rates could increase again, adding to our cost of living pressures. On a more positive note, these economists are now saying that if there is another rate rise, it’s likely to be the last before rates drop next year, and they are now putting dates on these rate cuts, which the data looks to support. So the hard times, at least from an interest rate perspective, won’t last forever. We go into this and more in this month's update.
Key dates to remember this month
The September-quarter inflation figures will be released on October 25, an important date to determine what is likely to happen to interest rates in November. The Reserve Bank of Australia's (RBA’s) modeling suggests that this consumer spending data should sit at circa 0.9 per cent for the quarter. Economists believe we are still spending too much and our data in Australia will come in slightly higher than what is predicted here by the RBA.
All eyes will also be turned to the Labour Force numbers which is due to be released on Thursday, October 19, showing the September jobs data. If both labour force/jobs data and the consumer price index (CPI) figures are too robust, there’s a good chance we will get hit with another rate hike, to tighten our spending and close the lid on inflation.
Predictions from the economists
AMP economist, Shane Oliver, says there’s a 40 per cent chance that rates will increase in November, but suggests that the economy will weaken, and cuts will start in June 2024
ANZ economist, Adelaide Timbrell, suggests that if we see strong consumer spending as well as stronger-than-expected job numbers, we will see a lift in November
Westpac economist, Bill Evans, believes there won’t be enough evidence to support a rate hike in November
CBA economist, Stephen Halmarick believes that the RBA rate hiking cycle has ended, and while near-term risks remain, there’s not going to be enough data to push rates further north and rate cuts will commence in May 2024
A greater share of income goes to the mortgage
Obviously, it won’t be good news if we see another rate hike and we saw in last month’s Black & White Finance update how our savings are continuing to decline. International Monetary Fund analysis released last week and reported by Michael Read from the Australian Financial Review, showed households in Australia contributed a larger share of their income to mortgage repayments in December 2022, when compared to any other advanced economy.
Mortgage stress is around the corner for some
The RBA’s October Financial Stability Review, showed that in July 2023, 13 per cent of borrowers, up from 3 per cent in April 2022, had expenses and mortgage costs exceeding their income. The RBA did note that these borrowers are likely to have some capacity to reduce spending over time but the data is surely set to worsen if there’s another rate rise.
This data from the RBA doesn’t show that borrowers are in mortgage stress at the minute, but does show that there’s a small portion of borrowers likely to see challenges in the months ahead.
Arrears likely to increase
It is expected that arrears are likely to increase, but the RBA, as per their report, believe they will remain very low. From the Financial Stability Review, “About 1.5 per cent of borrowers are estimated to have their essential expenses and mortgage costs exceed their income and be at high risk of depleting any available buffers. Even if the unemployment rate were to increase by 2 percentage points, the share of existing borrowers at risk of running out of buffers over the next year or so would likely remain at low single-digit levels. Similarly, most borrowers would be well placed to service their housing loans if interest rates were to increase further.”
Banks loosening policies and rates are not as sharp
We are definitely seeing banks continue to do their bit to help borrowers, especially those in need. Relaxing serviceability buffers for those looking to refinance and making it easier for self-employed borrowers by requesting less documentation.
We are seeing discounts on rates not come in as sharp though, which seems that the banks are trying to pull back some margin with lower volumes of recent times, to keep profitability high for their shareholders – so the negotiations that we are doing as mortgage brokers for all our clients, existing and new, has really ramped up.
Final thoughts
There are risks at play which remain elevated, keeping interest rates high but the data is here to support that we shouldn’t have to deal with this forever. With the pace of change in the economy, and with our savings being chewed into, our economists put forward quite a logical argument with their predictions for rate decreases. All eyes will be on the news this Thursday (Labour force figures) and the following Wednesday (CPI figures) to support what will likely happen. Regardless of the interest rate outcome, or for how long rates stay high for, we will continue to ensure your lending solution is in your best interests to tackle this challenging period and that each loan application is with the lender who’s conditions meet your specific requirements.
If you want to know more about the different rates, terms, or bank specials on offer at the moment or just have a general question, please send a note to peter@blackandwhitefinance.com.au or click the start today button a little lower. With the help of our amazing Mortgage Broker Sydney – Black and White Finance team, we will be able to support you.
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