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Finder’s RBA survey: Cash rate hike to cost the average homeowner almost $2,000 a year

Posted: 7 June 2022 4:20 pm
News
High Angle View Of Currency And Calculator On Table

The RBA has raised the cash rate by 50 basis points from 0.35% to 0.85%.

In this month's Finder RBA Cash Rate Survey™, 28 experts and economists weighed in on future cash rate moves and other issues relating to the state of the economy.

The majority of panellists (86%, 24/28) correctly predicted a cash rate rise in June.

Graham Cooke, head of consumer research at Finder, said today's cash rate hike will cost the average Aussie homeowner nearly $2,000 over the course of a year.

"The average homeowner will see their monthly repayments jump by $159 – equivalent to $1,907 per year from this increase alone, with more to come.

"The past few years have seen a huge number of buyers flood into the market, with rock-bottom interest rates. Those days are certainly over."

How much your monthly mortgage repayments could increase by

Loan sizeMonthly repayments on a 2.5% home loan rate (cash rate at previous 0.35%)Monthly repayments on a 3.00% home loan rate a 50 basis point increase (new 0.85% cash rate as of 7 June)Monthly difference*Difference per year*
30000011851264.8179.45953.39
$600,000**23712529.62158.91906.79
90000035563794.44238.352860.18
Source: Finder
*Based on a principal and interest loan over 30 years.
**Approximate average home loan based on ABS data.

Wage growth to lag behind inflation

In the 12 months to March 2022, the Consumer Price Index increased by 5.1%, while the Wage Price Index increased by 2.4%.

The overwhelming majority of panellists who weighed in* (95%, 20/21) expect wage growth to continue to lag behind inflation.

A Finder nationally representative survey of 688 workers found close to 3 in 4 workers (71%) feel they are underpaid. A third (33%) believe they should be paid more for their work, while a further 31% believe their wage should increase due to inflation.

Cooke said many Aussie workers were banking on a pay bump as a buffer against inflation.

"Australians are already feeling the cost of living crunch, and are looking to their employers for some relief.

"While unemployment is now very low and companies are competing fiercely for top talent, economists almost unanimously agree that wage growth won't keep pace with skyrocketing inflation," Cooke said.

Harry Murphy Cruise from Moody's Analytics said inflation would continue to outpace wage growth, but only in the short term.

"Given the number of workers on collective bargaining agreements, Aussies' wages tend to move more slowly than in other parts of the world. In the short term, prices will continue to outpace wages, although we can expect that to flip as supply constraints ease and wages play catchup," Murphy Cruise said.

Several economists noted wages may be slow to grow because inflation is not necessarily reflected in business profits.

The trend of "liar loans" could get worse

UBS research found 37% of borrowers who took out a home loan in the 6 months to December 2021 made false representations on their application.

The research found that for those who had taken out a loan with ANZ, more than half (55%) had been less than honest.

The survey shows 1 in 5 experts (22%, 4/18) say these "liar loans" could indicate there is a higher level of risk in the market than the RBA is taking into account.

Dr Angela Jackson from Impact Economics and Policy disagrees, but notes, "the potential for a number of borrowers… to borrow [more than] 6 times [their] income could [be] trouble if rates increase quickly and/or unemployment increases."

Dale Gillham from Wealth Within said liar loans were nothing out of the ordinary.

"Liar loans are normal and the recent figures would not be a surprise to the RBA," Gillham said.

Tim Reardon from Housing Industry Association said local lending standards were particularly strict.

"Lending standards are tight in Australia by international standards and banks conduct their own due diligence," Reardon said.

A fifth of experts (20%, 3/15) expect the trend of liar loans to increase.

*Experts are not required to answer every question in the survey

Here's what our experts had to say:

Those who predicted an increase of 25 basis points: (14)

Dr Andrew Wilson, My Housing Market (Increase by 25BP): "The RBA will likely raise rates again for June although the level of increase has become problematic given the nature of the data released in recent weeks is likely to challenge the Bank's assumptions. Predictably disappointing wages data, low jobs growth, another fall in the participation rate, another sharp decline in the savings rate, falling disposable income levels and a moderate GDP performance will be food for thought for the RBA [which is] hoping to avoid a hard landing in its attempt to curb inflation. Recessionary clouds are already gathering in other advanced economies that increased rates higher and earlier than Australia."

Dr Angela Jackson, Impact Economics and Policy (Increase by 25BP): "[It's] clear further tightening [is required] given capacity constraints in the labour market and general price rises now evident across the economy."

Cameron Kusher, REA Group (Increase by 25BP): "It's clear the RBA like many other central banks around the world are behind the inflation curve and after increasing interest rates for the first time since 2010 last month, I fully expect a follow-up increase in June."

David Zammit, Mortgage Choice (Increase by 25BP): "I believe it's a question of by how much, rather than if, the Reserve Bank will raise the cash rate at its June monetary policy meeting. Most lenders on the Mortgage Choice panel passed on last month's cash rate rise on their variable rate loan products and we have also seen some increases to fixed rate loan pricing."

Leanne Pilkington, Laing+Simmons (Increase by 25BP): "There's an expectation that a further interest rate increase is coming. For the housing market, we're in unusual territory where it's a case of the sooner the better, so a return to market normality can ensue and so borrowers can know where they stand."

Sarah Hunter, KPMG (Increase by 25BP): "The data continues to confirm that inflationary pressures are building, and that the supply disruptions globally are at least semi-permanent. Furthermore, the RBA Board signalled in May that they expect to progress with rate rises from here. Together, this suggests another 0.25% increase in the cash rate."

Peter Boehm, Pathfinder Consulting (Increase by 25BP): "The RBA has no choice but to implement cash rate increases for the remainder of the calendar year. It is going to be quite painful for those households with mortgages and variable rate debt."

Dale Gillham, Wealth Within (Increase by 25BP): "With rates having just risen and signs the property market is coming off, I think the RBA might play a wait and see game for a few months."

Jonathan Chancellor, The Daily Telegraph (Increase by 25BP): "The RBA will make another rise as it seeks to normalise rates."

David Robertson, Bendigo Bank (Increase by 25BP): "The RBA is very likely to increase rates in 0.25% increments steadily over the next 9 months until we approach a cash rate of around 2%. They will be careful not to overshoot with policy tightening and risk a hard landing, but inflation will rise further due to supply issues so they have more work to do."

Mark Brimble, Griffith University (Increase by 25BP): "The RBA is keen to normalise rates in the short term."

Saul Eslake, Corinna Economic Advisory Pty Ltd (Increase by 25BP): "The RBA needs to get monetary policy settings back to 'neutral' fairly quickly given the outlook for inflation."

Stephen Halmarick, Commonwealth Bank (Increase by 25BP): "Need to tighten policy due to the inflation environment."

Michael Yardney, Metropole Property Strategists (Increase by 25BP): "The RBA realises that Australia's inflation has caught them by surprise so they're now keen to get it under control."

Those who predicted an increase of 40 basis points: (9)

Craig Emerson, Emerson Economics (Increase by 40BP): "The RBA has begun the tightening process and there's nothing in the inflation outlook to suggest it has finished."

Peter Munckton, Bank of Queensland (Increase by 40BP): "Inflation is too high."

Shane Oliver, AMP (Increase by 40BP): "Inflation is running well above target and likely to get worse. Unemployment at 3.9% is effectively at full employment. Wage growth is picking up. There is a danger that the longer inflation stays high and demand is strong, inflation expectations will rise, making it even harder to get inflation back down. So the RBA needs to continue the process of normalising interest rates."

Mathew Tiller, LJ Hooker (Increase by 40BP): "Strong inflationary pressures are not expected to subside any time soon and with unemployment now under 4.0% I expect the RBA will lift rates multiple times over the remainder of 2022."

Harry Murphy Cruise, Moody's Analytics (Increase by 40BP): "The RBA's task is as much about managing expectations as it is taking heat out of the buoyant economy. Short-term inflation expectations are rising and the RBA needs to tame those gains. The May rate hike confirms that the RBA is acting on rising inflationary pressures even if much of the price rises are outside the RBA's sphere of influence (notably food and energy). We expect a 40 basis point hike in June, bringing the cash rate to 0.75% to reinforce this commitment. The speed of further interest rate normalisation will rely on how well businesses and families react to these higher borrowing costs, as well as the pace of real wage gains."

Geoffrey Harold Kingston, Macquarie University (Increase by 40BP): "To try and get in front of the curve."

Nicholas Frappell, ABC Refinery (Increase by 40BP): "Policy normalisation has only just begun. The RBA senses wage pressures are also emerging in a tight labour market."

Noel Whittaker, QUT (Increase by 40BP): "Inflation is rife, and I think they now think they were too soft on the last rise."

Jakob B. Madsen, University of Western Australia (Increase by 40BP): "The low unemployment and high inflation that is likely to remain above the RBA target for a while."

Those who predicted an increase without specifying the size: (1)

Tim Nelson, Griffith University (Increase, size not specified): "The RBA has indicated it will seek to gradually return rates to levels more akin to longer term experience."

Those who predicted a hold: (4)

Rich Harvey, Propertybuyer (Hold): "RBA is now committed to raising the cash rate to counter very strong inflation pressure, but will not be raising rates in rapid succession – they will take a cautious approach."

Tim Reardon, Housing Industry Association (Hold): "August will allow the RBA to see one more quarter of CPI data (in July), given the official data thus far still points to inflation being largely concentrated in fuel prices and home building costs, and wage growth relatively weak. Global financial and economic uncertainties are also high for the rest of the year."

Brodie Haupt, WLTH (Hold): "With continued uncertainty and rising pressure from inflation, I think it is likely there will be continual changes to the cash rate throughout the year."

Nicholas Gruen, Lateral Economics (Hold).

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