Finder’s RBA survey: $180K is now the minimum income needed to service a $500K mortgage
Aussie mortgage holders have been dealt a final blow for 2022 from the RBA.
In this month's Finder RBA Cash Rate Survey™, 40 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy.
The majority of panellists (88%, 35/40) correctly predicted a cash rate rise in December by 25 basis points – bringing it to 3.10%, up 300 basis points from 0.10% earlier this year.
Less than half of experts (43%, 17/40) expect the RBA to raise the cash rate at its first meeting in February next year.
Graham Cooke, head of consumer research at Finder, said the RBA's final cash rate decision for 2022 may not have been the festive news homeowners were hoping for.
"This eighth rate hike since May means that the average home loan rate has jumped from the mid-3s to the mid-6s".
"Put another way, Aussies with a $500,000 mortgage will be paying almost $900 more per month compared to what they were paying in April.
"To comfortably afford this you'd need to be earning a minimum income of just over $180K – significantly more than the average salary," Cooke said.
|Cash rate||Average home loan rate*||Average monthly repayment||Average monthly increase||Average annual repayment||Average annual increase||Minimum pre-tax income required|
|November (current rate)||2.85%||6.15%**||$3,046||$815||$36,552||$9,780||$175,265|
|(25bp rate rise applied)|
|Source: Finder, RBA. *Owner-occupier variable discounted rate. Repayments based on a $500,000 loan.|
|**Expected rise to current average rate.|
The majority of panellists who weighed in* (83%, 29/35) believe the cash rate will peak between 3.25% and 4%, with over two-thirds (71%, 25/35) expecting it will peak in the first half of 2023.
The Aussies living payday to payday
More than 2 in 5 Australians (44%) are running out of money between paydays, according to a Finder survey of 1,054 respondents.
1 in 6 Australians (16%) – an estimated 3.2 million people – run out of money before their pay hits their account.
Women (55%) are almost twice as likely as men (32%) to run out of money between paydays.
Cooke said Aussies were having to devote a bigger share of their budgets to essential living expenses.
"The current series of rake hikes has added almost $11,000 to the annual cost of a $500,000 mortgage – a huge amount of extra money for mortgage holders to fork out.
"Renters are also doing it tough; vacancy levels are at record lows and the latest Rental Affordability Index shows all capital cities saw a drop in affordability in this year.
"Between what Aussies earn and what they spend – for many there's nothing left over at the end of the month."
For those running out of money, Cooke recommended reviewing their spending.
"Budgeting tools really help with this – for example the free Finder app allows you to see exactly where your money is going, so you can plan better.
"Remember loyalty doesn't pay when it comes to financial products.
"Consider switching car insurance for a better deal or refinancing to a cheaper home loan to reduce monthly repayments," Cooke said.
Two-thirds of Finder's panel who weighed in* (68%, 15/22) forecast that refinancing levels will increase 10–15% across 2023, compared to 2022.
|Do you run out of money before payday?|
|Yes, every month||16%|
|I'm not employed||13%|
|Source: Finder survey of 1,054 Australians, October 2022|
Experts weary of increasing superannuation tax
In the 2020–2021 financial year, superannuation tax concessions cost the federal government $45 billion in forgone revenue – roughly 42% of the budget deficit that year.
Despite this, two-thirds of the panel (67%, 18/27) said the government should not raise taxes on superannuation income.
Stella Huangfu from the University of Sydney School of Economics said the government needed to balance out the trade-off.
"It is true raising taxes on superannuation income will reduce government fiscal burden in the short run.
"On the other hand, the long-run trade-off is people would end up with less superannuation savings in their account. This means the government would need to pay more pension eventually," Huangfu said.
However, Jakob B Madsen from the University of Western Australia noted, "The government needs to find revenue somewhere to stop the debt spiral."
The panel believes that on average, taxes on superannuation will increase by 9.5% in the coming decades – taking the rate from the current 15% to 24.5%.
*Experts are not required to answer every question in the survey
Here's what our experts had to say:
Nicholas Gruen, DYSCALL PTY. LIMITED (Hold): "Inflation will fall, but will be difficult to get in the target band so rates may not come down much even if growth is weak."
Michael Yardney, Metropole Property Strategists (Hold): "The RBA wants to bring inflation under control, but is prepared to be patient."
Dale Gillham, Wealth Within (Hold): "The economy is still doing good and inflation is moving up. More needs to be done to slow this."
Tim Nelson, Griffith University (Hold): "Inflationary pressures will begin to moderate as supply chains adapt. Recent shipping cost data indicates some degree of adaptation already."
Mark Crosby, Monash University (Hold): "The RBA is likely to raise again in December, with an expectation that inflation will start to fall and only 1 or 2 more cash rate increases in 2023."
Tomasz Woźniak, University of Melbourne (Increase): "The combined forecasts from 36 bond-yield curve models using monthly and weekly data indicate that the cash rate is bound to increase steadily until around June next year and reach 4%, with a likely range from 3.2–4.8%. It will stay at this level by the end of 2023. The models predict an upward trend for the next several months, which translates to a likely rise in December that would allow for avoiding a sharper movement in February. The forecasts are available at https://donotdespair.github.io/cash-rate-survey-forecasts/."
Anthony Waldron, Mortgage Choice (Increase): "We are getting closer to the end of the rapid rate rise cycle."
Andrew Wilson, My Housing Market (Increase): "Inflation settling."
Matthew Greenwood-Nimmo, University of Melbourne (Increase): "Inflation is still above target but may have peaked."
Evgenia Dechter, UNSW (Increase): "Labour market is still tight, which gives the RBA room for a further interest rate increase. On the other hand, the decline in retail trade and the lower than expected inflation in the US signals that it might be a good time to slow down and observe."
Matthew Peter, QIC (Increase): "The RBA must raise the cash rate to be at least in line with the long run neutral rate of 3.5%. But the peak in inflation and the greatest pressure on the economy will be in Q1 of next year. The RBA must confine its rate hikes to around the neutral rate for fear of engineering a hard landing."
Mathew Tiller, LJ Hooker Group (Increase): "There have been early signs that consumer demand and some global supply chain bottlenecks are beginning to ease, boding well for the inflation outlook. However, inflation is yet to peak and remains too high, so the RBA will use their final meeting of the year to increase rates."
Garry Barrett, University of Sydney (Increase): "Inflationary pressures remain."
Nicholas Frappell, ABC Refinery (Increase): "The economy remains broadly strong, with a tight labour market and stubborn core inflation."
Nalini Prasad, UNSW Sydney (Increase): "All measures of inflation still remain well above the RBA's target band. Real interest rates are still low and negative. To dampen inflationary pressures real interest rates will need to rise."
Rich Harvey, Propertybuyer.com.au (Increase): "The inflation rate still requires taming and a few interest rate rises are required to curtail aggregate demand – but the RBA has a fine balancing act to perform. It needs inflation trending down back toward its comfort range but does not want to crash the property market or create a recession."
Peter Munckton, Bank of Queensland (Increase): "The inflation rate will be well in excess of 4% so it needs a cash rate at least 3.6%."
Jakob B Madsen, University of Western Australia (Increase): "It is close to where it should be in the long run. The cash rate has been far below its natural level for too long. Furthermore, inflation is not going to subside overnight."
Cameron Kusher, REA Group (Increase): "RBA have been clear there is still work to do to tame inflation so I expect interest rate increases in Dec 22, Feb 22 and Mar 22 and then a period of stability thereafter."
Tim Reardon, Housing Industry Association (Increase): "They have indicated more hikes still to come, though further hikes are jeopardising the housing industry's soft landing and weighing too heavily on households and businesses. Further rate increases are likely to cause the building industry to continue through a bust-boom-bust cycle, undermining the return to stable GDP growth."
Leanne Pilkington, Laing+Simmons (Increase): "The market, including mortgage holders, have had to endure a major shift in conditions in the second half of the year. The impacts of the month-on-month increases are proving substantial and it will be important for the RBA to properly quantify those impacts over the coming holiday period before deciding on a course for 2023."
Stella Huangfu, University of Sydney School of Economics (Increase): "RBA has recently revised upwards its forecast for peak inflation to 8% this year. It also predicted that inflation will last for some time: 4.7% for 2023 and above 3% for 2024. It is almost certain the RBA will continue to increase the cash rate."
A/Prof Mark Melatos, School of Economics, University of Sydney (Increase): "Inflation is significantly above the RBA's target band and likely to increase further, notwithstanding declining oil prices and an increasing risk of global recession. Like most central banks, the RBA was slow to recognise the inflation threat and its policy settings need to catch up to the inflation reality. Moreover, the RBA's hand is likely to be forced by increasingly aggressive tightening actions by other central banks. This means the cash rate will likely need to be raised steadily in the near future with a likely pause early 2023 as the RBA assesses the impact of its tightening strategy."
Shane Oliver, AMP (Increase): "Still high inflation, strong jobs and wages data and the absence of an RBA meeting in January are likely to drive another 0.25% hike in December to 3.1% (with the risk of one more hike to 3.35% in February) but by end 2023 we expect weak growth and a sharp fall in inflation to drive the start of rate cuts."
Sarah Hunter, KPMG (Increase): "The data continue to indicate that inflationary pressures are not contained, and the RBA has flagged that further rate rises are needed. Equally, there haven't been any major surprises in the data recently, and consistent with this I expect the Board to continue with a further 25bps hike."
Peter Boehm, Pathfinder Consulting (Increase): "I believe there is every possibility rates will start to come down during second half of next year, either because inflation will be under control and/or because the economy will need a boost."
Noel Whittaker, QUT (Increase): "This is a very tough question – the next rise will be 0.25%, or 0.50%. But I favour a small increase because I think the rate increases are biting and the feds may be more conservative this time."
Brodie Haupt, WLTH (Increase): "The Reserve Bank will continue to increase the cash rate until the inflation begins to abate."
David Robertson, Bendigo Bank (Increase): "The RBA will almost certainly increase rates by 0.25% in December to 3.1% (so 3% of hikes since May). Given the latest CPI data they will probably increase rates again in February, before a pause. Globally supply is slowly improving, which may see rates plateau in the low to mid-3s."
Angela Jackson, Impact Economics and Policy (Increase): "Current economic conditions warrant a tightening of monetary policy, and while expecting increases to slow in 2023 consider 3–4 more rises over the next year likely."
Geoffrey Kingston, Macquarie Business School (Increase): "RBA will tend to remain behind the curve, initially raising rates to combat unexpectedly high inflation, then lowering rates to combat unexpected weakness in the economy."
Stephen Miller, GSFM (Increase): "The RBA is underestimating the momentum in price and wage inflation and will have to move the policy rate up much further."
Azeem Sheriff, CMC Markets APAC & Canada (Increase): "Pace of inflation is still accelerating with a 1.2% increase from Q3's reading. Full effects of initial rate rises are only now starting to take effect. We still need rates to reach a higher rate and pause, to allow for rate rises to catch up."
Malcolm Wood, Ord Minnett (Increase): "The aggressive RBA tightening cycle will slow the economy to well below trend. With inflationary pressures easing, we expect a moderate mid-cycle easing of policy in 2H23."
Jeffrey Sheen, Macquarie University (Increase): "By March 2023, the RBA will likely reach a balance between re-anchoring inflation expectations and preventing financial instability."
Craig Emerson, Emerson Economics (Increase): "I fear the RBA will overdo cash rate increases, slow the economy too much and need to ease in the second half of 2023."
Cameron Murray, University of Sydney (Increase): "Communications have flagged that the end of the tightening cycle is near."
Jason Azzopardi, Resimac (Increase): "The required level to rein in consumer spending. The increases to date do not appear to have had the desired effect and NZ aggression appears to be the course we'll need to follow."
Alan Oster, NAB (Increase): "RBA needs to do more but not overdo it. Recognise the lags for monetary policy to work – i.e. around 12–18 months."
Stephen Halmarick, Commonwealth Bank (Increase): "Rate hike in December."