‘Xmas killer’: interest rate warning

The Reserve Bank (RBA) is poised to hike the cash rate for the eighth month in a row, with Treasurer Jim Chalmers saying that “the Governor has flagged further rate rises and the market expects another increase this week”.

The major banks are all predicting another rise of 25 basis points to bring the cash rate to 3.1 per cent, something that could ruin Christmas, according to Property Club‘s Kevin Young.

“This rental situation is the worst I‘ve ever seen in the 50 years I’ve spent in property,” he said.

“Give renters some sort of relief for Xmas because inflation can’t be used anymore as the excuse to increase interest rates.”

The Treasurer has flagged that many Australians will be struggling to keep up with rising interest rates.

“We know these are harsh and heavy times for Australian households: on top of climbing grocery and energy bills, the average family now has to find around $500 more each month on mortgage repayments since rates started rising before the election,” Dr Chalmers said.

Property Group predicts that average weekly rents for those living in the capital cities could surge by over 20 per cent in 2023 “because the supply of rental property is chronically low at a time of rising demand”.

The RBA Governor Phil Lowe has warned renters to expect a hit to their pocket through 2023.

“The other supply side issue we are focused on is the supply of housing because the rental vacancy rate now is quite low, and the population growth is picking up,“ Mr Lowe told the Senate Economics Legislation Committee in late November.

“I’m imagining that we’ll see increased pressure on rents over the next year as population growth collides with fairly modest growth in the supply of housing”

Property expert Dr Chris Martin agrees that renters will be facing a harsh Christmas with rents on the rise.

“The issue is whether increasing interest rates makes investing in new property more difficult,” Dr Martin said.

“Higher interest rates make it harder for would-be owner-occupiers to invest in creating new houses to boost supply.”

However, Dr Martin said that Australians needed to be critical of landlords arguing that interest rates should be lower to keep rental costs down.

“We didn‘t see the reverse for that long period where interest rates were low, we didn’t see landlords passing on decreases to tenants,” he said.

The government needs to be looking at more relief for renters amid high-interest rates and inflation, Dr Martin said.

“We need to be looking at inflation-fighting tools that are more sectoral specific and that might include things like rent regulation,” he said.

“Cost of living pressures and rents are rising, a perfectly sensible way of dealing with that is to introduce legal restrictions on rent increases rather than relying on interest rate increases that will make an investment in housing more difficult for the range of investors.”

Mr Young says that the government needs to be focusing on supporting investors.

“What they should be doing is incentivising first-home property investors through a range of policies to get them back into the market,” he said.

Renters are not the only group of Australians who will be suffering from tight budgets over the Christmas period.

Another rate hike will “kill the budget and pinch on the Christmas” of first homebuyers according to University of Western Australia economics professor Jakob Madsen.

“It will put a hard squeeze on homeowners if interest rates go up,” he said.

He argues that the effect on homeowners will be greater than the effect on renters.

“It‘s definitely going to be a killer, it’s going to be a drag on people’s finances, there’s no question that those with a high mortgage are going to be in serious trouble over the next few years.”

Mortgage holders have had a horror year with hundreds of dollars added to their repayments since the RBA began rate hikes in May.

According to RateCity.com.au, those with a $500,000 loan will have to fork out an extra $75 per month from the December

If the RBA raise rates by the predicted 0.25 per cent on Tuesday, those with a $500,000 mortgage will have their repayments increased by $834 a month since May according to RateCity.com.au.

For those with a $1 million mortgage, that figure blows out to $1668.

“While the RBA Board still does not know how high the cash rate will go, people should prepare for rates to rise further next year,“ RateCity.com.au research director Sally Tindall said.

“If you’ve got a mortgage and are worried about rising rates, do a stress test on your loan. Work out what your repayments will be if the cash rate rises to 3.85 per cent and start paying that higher amount now.