Imminent rate hike to hurt most households
- finder.com.au’s biggest Reserve Bank survey reveals no change on Tuesday.
- Majority of experts predicting cash rate will rise within next 12 months
- Households urged to plan ahead before it’s too late
JUNE 28, 2014, SYDNEY – One of Australia’s biggest comparison websites finder.com.au is urging households to prepare for the imminent rise of interest rates within the next year, following its biggest Reserve Bank survey, released today (Saturday June 28, 2014).
The finder.com.au survey, which now includes 18 leading experts and economists including all four major banks (ANZ, Commonwealth Bank, National Australia Bank and Westpac), found all 18 respondents unanimously expect the Reserve Bank to hold the official cash rate at 2.50 percent on Tuesday July 1, 2014.
The majority of respondents (11 out of 18, or 61 percent) are forecasting the cash rate to rise within the next 12 months. Of these 11, six experts state the cash rate could start increasing by the end of this year including AMP, Commonwealth Bank, Commsec, HSBC, St George Bank and Urbis.
Six respondents expect the cash rate will rise next year, with experts from Heritage Bank, RAMS, AAP and Westpac betting on a rise from the second-half to late 2015.
Treasurer of ING Direct Michael Witts was the only expert from the finder.com.au Reserve Bank survey to report equally compelling scenarios for the cash rate to increase or decrease at the next rate move.
Michelle Hutchison, Money Expert at finder.com.au, said the survey results show that borrowers need to start planning ahead for rate hikes before it’s too late.
“It looks like we have well and truly hit the bottom of the cash rate cycle and interest rates are set to climb within the next 12 months, with only one of the 18 experts in our survey (ING Direct) was unsure of which direction the next rate move will be.
“According to the Australian Bureau of Statistics (ABS), over 70 percent of households have some form of debt such as a home loan, credit card, personal or business loans or unpaid bills. So regardless of whether the next cash rate rise will be this year or next, it’s likely that most households across Australia will be hit hard and need to start planning ahead before it’s too late.”
Australians are taking on more debt when it comes to the mortgage market, with the average home loan size increased by 64 percent over the past decade to $314,000, according to an analysis of ABS Housing Finance data by finder.com.au.
The average fixed home loan size saw the biggest jump, which almost doubled (97 percent) since 2004 to $327,000. First home buyer average loan size has increased by 50 percent to $301,000 while non-first home buyers increased their average loan size by 59 percent to $327,000.
“With average home loan sizes among the highest we’ve ever seen, it’s a real concern that many borrowers will struggle with bigger interest rates.
“If the cash rate reaches average levels of the past decade of about 5 percent and home loan interest rates follow to an average of about 7 percent, that would cost the average home loan of $318,000 an extra $345 per month or over $4,000 in a year.
“Whether you have a home loan or credit card debt, it’s a good idea to review your budget and look to make the most of your money while interest rates are low. Use comparison websites like finder.com.au to compare your financial products to others and consider switching or negotiating with your providers.
“Everything you can do now to pay down your debts as much as possible will reduce the impact of rising interest rates in the near future,” said Mrs Hutchison.
What the finder.com.au survey of leading economists and money experts had to say...
|Economist/expert, Organisation||Snap shot of comments||Next rate move|
|Garry Shilson-Josling, AAP||"...The recovery will be slow so there's no need to put the brakes on with a rate rise just yet. The outlook is highly uncertain, but in the absence of a major global shock the RBA should start lifting rates again after a fairly long wait as the economy slowly gathers pace..."||Late 2015|
|Shane Oliver, AMP||"...The Reserve Bank has cut interest rates to record lows...to boost the rest of the economy, and there's speculative evidence that it's working, but it's still tentative... The most recent budget has had a negative impact on confidence, and that's thrown a bit of a spanner in the works..."||Late this year or early next year|
|Warren Hogan, ANZ||"The economy is playing out as expected ... essentially monetary policy is set to remain on hold for an extended period of time."|| Next year, possibly first half of 2015.|
|Steven Pambris, Bank of Sydney||"...The measures announced in the budget were as per our expectations with contractionary impact already reflected in the drop of consumer confidence in the latest surveys. We see that the current record low interest rates will have to continue for some time and in line with our previous position do not expect any movement in rates in 2014, if any more likely in March 2015"||March 2015|
|Michael Blythe, CBA||"The economy appears to be improving, but there's still a lot of uncertainty of course so it's the RBA's preference to wait and see what happens..."||November 2014.|
|Craig James, Commsec||"...At the end of the day, the Reserve Bank wants to keep inflation between 2.03%... As each month passes it does appear clear the Reserve Bank wants interest rates to remain where they are for a long period of time..."||November/December 2014, maybe early 2015|
|Don Magin, Greater Building Society||"...There is no sign of inflation. The RBA will be particularly concerned about pressure on capital expenditure. The good GDP growth we saw in 2012, based on investment by the mining sector, has subsided..."||Mid-2015|
|Paul Williams, Heritage Bank||"The RBA appears happy with current rate settings while the domestic economy tries to build some momentum. The RBA will be keeping an eye on the trends in unemployment, the strength of the Australian dollar, inflation levels, developments in key offshore economies, as well as rising tensions in the Middle East..."||Well into 2015|
|Paul Bloxham, HSBC||"...Economic growth is still underway and interest rates will remain at record lows – which is where they are now."||Around the end of the year, around Q4|
|Michael Wills, ING Direct||"...It is difficult to see a scenario in which the RBA would change the cash rate... Equally compelling scenarios can be constructed to support both an increase and a decrease in the cash rate... Rates are on hold for an extended period that could extend into the first quarter of 2015."||Could extend into the first quarter of 2015|
|John Caelli, ME Bank||"...Growth remains moderate and consumer confidence has taken a hit following the Federal Budget. The uncertainty over the Budget process will cloud the outlook for a period of time. The next likely rate change will be in the first half of 2015 and is likely to be up."||First half of 2015|
|Glenn Levine, Moody’s Analytics||"...Inflation is within target and the economy is expanding slightly below potential... Tepid wage growth and a slightly looser labour market will help to keep inflation within target... The next move will likely be an interest rate increase around the middle of 2015 as we expect certain parts of the economy to be bumping up against capacity constraints by this time."||Mid-2015|
|Jonathan Chancellor, Property Observer||"...I still think the next rate change won't be until 2015, although the RBA historically likes to surprise. Let's see how the federal budget aftermath works it way through the economy after the new Senate in July takes effect. Consumer sentiment is still at its lowest level in almost three years..."||2015|
|Nathan McMullen, RAMS||"...Monetary policy settings remain mildly expansionary relative to long run averages and are appropriate given the current outlook for inflation... We continue to expect the RBA to keep interest rates on hold through the remainder of 2014 and much of 2015."||Q4 2015|
|Janu Chan, St. George Bank||"...On the one hand interest rates are quite low, and they are helping to support the economy, but at the same time there are some risks on the horizon... The strong growth that we saw in Q1... We'll not be sustaining that momentum in Q2..."||November of this year, but this could be delayed until early 2015.|
|Scott Haslem, UBS||"...We're seeing signs of improvement within the non-mining economy. The overall outlook for the economy is contained... The economy is not showing enough improvement for concerns of inflation..."||Not until 2015|
|Nicki Hutley, Urbis||"...A solid first quarter economic performance is likely to be followed by a bit of a stumble in the second quarter of 2014, on the back of weaker consumer confidence and demand following the Federal Budget... The RBA will want maintain its watch and wait stance for at least another quarter..."||Q4 2014|
|Bill Evans, Westpac||"...The terms of trade will have fallen in Q1 while the AUD has remained stubbornly high. We retain our forecast for an improvement in the condition of non mining equipment investment from a contraction of 11.5% in 2013 to a modest lift in 2014 of 3.4%..."||Third quarter of 2015, with a 25bp hike in both the September and December quarters|
Source: finder.com.au, ordered alphabetically by company name
For detailed comments from the survey please click here (full comments will be live on Friday May 30, 2014) https://www.finder.com.au/rba-cash-rate
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The information in this release is accurate as of the date published, but rates, fees and other product features may have changed. Please see updated product information on finder.com.au's review pages for the current correct values.
finder.com.au is Australia's most visited comparison website and has helped over 4.8 million Australians find better credit cards, home loans, life insurance, shopping deals and more since 2006. finder.com.au compares over 250 credit and debit cards from 31 brands, over 300 home loan products, and information from 13 life insurance providers as well as online shopping promo codes, mobile phone plans, travel insurance and more. One Australian every five minutes is using finder.com.au to find better (Source: Google Analytics).