Millions of cash-strapped mortgage holders are “at risk” should the Reserve Bank of Australia lift interest rates in February.
Ahead of the Reserve Bank of Australia’s meeting on February 3, the money markets and experts are heavily calling for an interest rate hike from 3.60 to 3.85 per cent.
“All up, it appears to be game, set and match for a rate rise at the February policy meeting,” Betashares chief economist David Bassanese said.
Should the RBA lift rates, Roy Morgan says it will lead to a spike in mortgage stress for Australian households.
If rates are lifted by 25 basis points in February, they say a further 41,000 Australians will be “at risk”, with a total of 1,228,000 mortgage holders feeling the pinch.
Add a second interest rate hike or a total of 50 basis points of interest rate rises to 4.1 per cent, and a whopping 1,322,000 mortgage holders will be at risk.
A mortgage holder is considered “at risk” if their mortgage repayment is more than 25 to 45 per cent of their after-tax household income based on the appropriate Standard Variable Rate reported by the RBA and the amount they initially borrowed.
This varies depending on the income and spending.
What is driving inflation higher?
The Australian Bureau of Statistics on Wednesday revealed the headline inflation rate was 3.8 per cent for the 12 months until December, up from 3.4 per cent in the 12 months until November.
Annual goods inflation was 3.4 per cent in the 12 months to December, up from 3.3 per cent to November.
This was 3.3 per cent higher in December, up from 3.2 per cent in November.
This was mainly due to the price of electricity soaring 21.5 per cent as both federal and state rebates were unwound, as well as the price of meat which had a double digit jump.
Services inflation also added 4.1 per cent to household bills to the 12 months until December, up from 3.6 per cent to November.
The main contributor to this was domestic holiday travel up 9.5 per cent – in part due to the Ashes cricket series against England – as well as rising rents which stung households a further 3.9 per cent.
NED-9108-Monthly-Inflation-Indicator
AMP chief economist Shane Oliver told NewsWire lifting interest rates could still lower inflation, even if many of the items that rose were essentials.
“A lot of the things that are driving the inflation won’t be impacted by rate hikes but it is the overall demand in the economy that gets dampened and that slows inflation” he said.
“People have less money to spend, so it may not be the case that local government rates or electricity prices come down because of interest rates but something else will come down because a 25 basis point rise will cost someone with the average mortgage $110 a month.”
Mr Oliver says while inflation is on the rise he thinks the central bank should be patient on any potential rate hikes.
“Whether the RBA needs to raise rates, in my view they are better off holding to see if (inflation) was a temporary blip rather than a permanent one,” he said.
“But there will be strong arguments going the other way.”
