Moody’s worries the falling Aussie dollar could force an RBA rate rise, tipping some mortgage holders into danger
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%.
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
- Mortgage rate hikes continue, with UBank and Virgin Money raising some rates by 20 basis points
- Ask Finder: Can I get a mortgage offset account in my business’s name?
- CoreLogic’s December figures confirm 2018 was a very rough year for the Australian property market
- APRA to remove interest-only home loan speed limits
- All of December 2018’s out-of-cycle rate changes