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Moody’s worries the falling Aussie dollar could force an RBA rate rise, tipping some mortgage holders into danger

Posted: 1 August 2018 4:15 pm
News

A graph of falling numbers.

With household debt at record highs and mortgage stress on the rise, a cash rate hike is the last thing Aussie borrowers need.

The Reserve Bank of Australia hasn't raised the cash rate in well over a year, in part because Australian borrowers are drowning in debt.

But a new report from Moody's Investor Services warns that the falling Aussie dollar may give the RBA little choice. This is potentially a disastrous result for Australian home buyers, who have borrowed enormous amounts of money to buy property in the last few years.

According to the report, "Sustained currency depreciation is credit negative for Australia because it could bring forward a tightening of the country's monetary policy, making debt less affordable for highly leveraged households."

The Australian dollar has been falling steadily in 2018, from a high of 80 cents in January to a current low of 74 cents. This is a fall of more than 5%.

Graph depicting the fall of the Australian dollar against the US dollar.

Graph of the Australian dollar against the US dollar. Source: www.xe.com

All of the experts in finder's RBA cash rate survey believe the RBA will keep the cash rate at its historic low of 1.5%. But if the Australian dollar continues to fall against its US counterpart, a lift in the cash rate may be necessary to stave off inflation.

The real problem is that Australian household debt is at an all-time high, passing 200% of disposable household income. Mortgage stress is high and lenders are already raising rates without the RBA's intervention.

But so far the Big Four have kept rates steady (and in Commbank's case lowered them). A move by the RBA could change this.

Are you facing mortgage stress?

Mortgage stress means your repayments are getting too big for you to comfortably handle. The traditional marker is spending more than 30% of your income on mortgage repayments.

Macquarie Bank recently suggested as many as a million Aussie households could be close to mortgage stress, with even just a small rate rise enough to tip them into financial hardship.

If you're struggling to meet your repayments, you do have options:

  • Refinance to a lower rate. Compare mortgages and find a lower interest rate. Switching will help you save a lot in repayments.
  • Talk to your lender. Your lender doesn't want you to default on your repayments. Reach out, tell them your situation and they will try to help you. Your lender may offer you a temporary discount, a break from repayments and advice on sorting out your finances.
  • Consolidate your debts. If you have debt from credit cards and personal loans, it might be wise to combine them with your mortgage debt to have a single repayment (with a potentially lower rate).

Avoid mortgage stress by switching to a lower interest rate

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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Maximum Insured LVR Amount Saved Short Description
UBank UHomeLoan Variable Rate - Discount offer for Owner Occupiers, P&I Borrowing over $200,000
2.59%
2.59%
$0
$0 p.a.
80%
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
St.George Basic Home Loan - LVR 60% to 80% (Owner Occupier, P&I)
2.64%
2.66%
$500 (waived for loans above $150,000)
$0 p.a.
80%
Refinancers borrowing $250,000 or more can get a $2,000 cashback per property (Other terms, conditions and exclusions apply). A low variable interest rate for home buyers and refinancers. Application fee waived for loans above $150,000.
loans.com.au Smart Home Loan - (Owner Occupier, P&I)
2.57%
2.59%
$0
$0 p.a.
80%
Get a low variable interest rate and pay 0 application or ongoing fees with this convenient online lender.
HSBC Home Value Loan - Promotional Offer (Owner Occupier P&I)
2.65%
2.66%
$0
$0 p.a.
80%
Get a low interest rate loan with no ongoing fees. Plus you can make extra repayments and free redraw online.
Suncorp Back to Basics Home Loan - Better Together Special Offer $150k+ LVR<=90% Incl. LMI (Owner Occupier, P&I)
2.78%
2.79%
$0
$0 p.a.
90%
Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000. Refinance to an eligible Suncorp loan and get a cashback of $2,000 or $3,000, depending on your loan amount. Other conditions apply.
ME Flexible Home Loan Fixed with Members Package - 2 Year Fixed Rate LVR <= 80% (Owner Occupier, P&I)
2.49%
3.41%
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$395 p.a.
80%
Lock in a competitive rate for owner occupiers for two years. Comes with a 100% offset account.
Virgin Money Reward Me Fixed Rate Home Loan - 2 Year $300k+ Special offer (Owner Occupier, P&I)
2.29%
2.91%
$300
$10 monthly ($120 p.a.)
80%
Buy your home and lock in a low rate for the first two years. Get a $2,500 cashback when you switch to Virgin Money with a loan amount of $300,000 or more with an LVR up to 80%. You must apply by 28 August and settle by 30 October 2020.
Bankwest Complete Home Loan Package Variable - $200k to <$750k LVR <=80% (Owner Occupier, P&I)
2.73%
3.18%
$0
$395 p.a.
80%
A low variable rate loan with a 100% offset account and package discounts.
Bank of Melbourne Basic Home Loan - Special Offer (Owner Occupiers, P&I) LVR above 60% up to 80%
2.64%
2.66%
$500 (waived for loans above $150,000)
$0 p.a.
80%
Refinancers borrowing $250,000 or more can get a $2,000 cashback per property (Other terms, conditions and exclusions apply). A low variable interest rate for home buyers and refinancers. Application fee waived for loans above $150,000.
HSBC Home Value Loan - Promotional Offer LVR 90% (Owner Occupier, P&I)
2.80%
2.81%
$0
$0 p.a.
90%
A competitive value home loan with no ongoing fee.
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