Christmas spending adds to pressure, says broker
With annual inflation now at 7.3% and the RBA forecasting that it will reach 8% by the end of the year, Zippy Financial is encouraging Australians to do their bit to rein prices in.
The official cash rate has increased by 175-basis points this year, which the RBA said was necessary to establish a “more sustainable balance” of demand and supply.
Zippy Financial director and principal broker Louisa Sanghera (pictured above) said while interest rate rises have been moderating (with 25-basis point increases in October and November rather 50bp hikes), everyone has a part to play to bring inflation down.
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“If we want interest rates to come down, then we all need to do our bit to help reduce inflation, including reining in spending where possible,” Sanghera said.
With the festive season just over six weeks away, Sanghera said she was concerned people would splurge on gifts they could not afford, adding further pressure to inflation in 2023.
“The rapid increase in interest rates is still clearly starting to hurt some borrowers, so it would be a sound idea to try to be a bit more moderate these holidays, given that mortgage repayments have risen so sharply for people with variable home loans,” Sanghera said.
Due to a three-percentage point buffer applied by lenders to mortgage applications, Sanghera said a growing number of potential borrowers were not passing loan servicing assessments.
Prior to the November 1 monetary policy announcement, mortgage applications were required to service variable interest rates of between 7.29% to 7.54%. This was much higher than the interest rates on the actual loans, and caused issues for many potential borrowers, she said.
“Fixed rate home loans were being assessed against interest rates of between 8% and 9%, which is crazy given borrowers can still secure fixed home loans in the 4% range.”
Unless inflation is brought under control, Sanghera said this level of interest rates would continue to be used to assess mortgage applications, creating a further drag on declining property prices.
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As inflation is expected to ease in 2023, Sanghera said it was important that fixed rate borrowers due to roll off onto higher variable rate mortgages did not panic.
“It does appear that some of the inflationary pressures are temporary, so we may well see interest rates moderating earlier than predicted,” Sanghera said.
Sanghera said some fixed rate borrowers with a year until their expiry date were already making contact about refinancing, so they could prepare for their repayments to rise.
“It’s vital that all borrowers adjust their spending so they can manage current and future mortgage repayments, including watching their pennies, if possible, this holiday season.”
