Horrified Aussies face up to 7% mortgage rates

A new cost of living survey conducted by online financial brokers Savvy suggests that 26% of Australian mortgage holders will experience mortgage stress, defined as a homeowner or household using more than 30% of their net income to meet mortgage repayments, following the Reserve Bank of Australia’s (RBA) consecutive rate rises of 0.75%.

Mortgage stress is the greatest amongst 25–34 year-olds and 35–44-year-olds, with 38% saying that rising mortgage repayments are a significant concern when it comes to their ability to keep up with the cost of living.

53% of survey respondents also said that they would cut down on other expenses to prioritise mortgage repayments.

Mortgage impact on cost-of-living

According to the survey, 44% of Australian mortgage holders spend between $251 to $500 in weekly repayments, while 23% of mortgage holders spend $501 to $750, and a further 18% spend $751 and over.

The latest futures market forecast has Australia’s Official Cash Rate (OCR) soaring from 0.85% currently to 3.2% by December and 3.8% by June 2023:

Futures market interest rate forecast

Futures market tips another 3% of interest rate hikes.

If the RBA followed the futures market’s forecast, this would see Australia’s discount variable mortgage rate more than double from its April 2022 low of 3.45% to 7.15% by June 2023:

Australian discount variable mortgage rates

Australian discount variable mortgage rates to soar beyond 7%!

In turn, the average principal and interest mortgage repayment would rise by around 50% from their level immediately before the RBA’s initial 0.25% rate hike.

Given Australian households are among the most indebted in the world, a 50% increase in mortgage repayments would have a major detrimental impact on household finances, consumption spending, the economy, and house prices.

For these reasons, the market’s bullish OCR forecast is highly unlikely to ever come to fruition as it would usher a deep recession and the nation’s biggest house price crash in 100 years.

The RBA will be stopped-out long before the OCR hits those heights.

Unconventional Economist
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Comments

  1. Can anyone tell me where I can find a breakdown of the value of Australian mortgages for variable and fixed rates with the fixed rates broken out by fixing tenor (ie 0-3 maths, 3-6 months, 6-12 months, 1yr, 2yr etc

    I can see the fixed and variable but thats it.

    Going to be interesting to see what happens in Oz, the Bank stress tests that were applied even 3 months ago look set for a real world test.

    • Arthur Schopenhauer

      If you do find it, could you share it here?

      The last 5 years of stress tests are going to look pretty dubious, especially in Sydney.

  2. What if a house price crash (& crash of all overpriced global assets) is what’s needed to head off an existential threat to the global capitalist order itself?

    They are telling us rates are going Up Up Up but we find this incomprehensible. It is a function of how braindead we’ve all become the past 20 years.

    But the world has changed.

    They are telling you to sell now. Before it’s too late.

    • Firewall asked a few questions l
      RBA will hike in July & Aug take the cash rate circa 2%
      They won’t get too much past 2%
      You’ll see the fixed rates falling by around August

      Home loan rates are heading back to emergency levels into next year,

      As the world heads into economic depression over late this year into 2023, RBA will kick into unlimited QE

      They will be forced to as the banks & housing prices crash like Ireland & worse

      The declines from now will just get steeper,

      This time they won’t stop the house price falls, might just slow them down

      Regardless banks will need to be shut & online transactions closed, they will stop the bleeding, it’ll be hard to know where to run to.

      RBA will be cutting by Oct & maybe earlier

      Central banks have accelerated & created this mess we are in,

      It’s going to be a very tough 2023

      Expect unemployment circa 20%
      House prices crash
      Peoples super wiped out maybe 3/4 gone –

      Over the next 2 years we are going to see wealth destruction worse than what we saw btw 1929 & 1932

      Our banks can’t & wont survive

      We are facing an Aust banking crisis & economic depression with a negative wealth effect that will exacerbate everything even more

      *banks will be shut
      * my guess is stock market exchanges will need to be halted & closed for a period to stop the free fall
      * they will be forced to turn off electronic transfers
      * they’ll have to shut all shops & likely lock us in our homes
      * rationing put in place
      *id say they’ll bring in the army to help with food queues etc
      As house prices crash way more than 50% (you won’t know) because they will shut down any property transactions.
      Rent moratoriums

      You don’t want to be a landlord you’ll get fcked over just like in 2020, home loan repayments put on holiday, renters won’t have to psy rent but mortgage interest will just keep piling up

      They’ll do helicopter money which is really just job keeper

      We will come out of depression in an absolute uneven recovery

      All these hand outs labour do, unlimited QE, will just create another profit less boom

      There will be winners & losers even more extreme than from 2020 QE debacle

      Central banks are trapped, printing money doesn’t work & creates huge inflation you can already

      You’ll see rares over this decade up at 1989s level & much higher

      Don’t be surprised to see a 20 handle mortgage rate 4 or 5 years out

      Food shortages
      High inflation
      $5 litre fuel
      There will be very little building going on

      If you want a job move to Perth we will have a repeat of that Dutch disease

      AUD headed way above parity & we are going to see the biggest commodity super cycle in history

      Iron ore will be north of $500 & AUD break 2012 levels above 1,20 this time

      LETS JUST PREY WE DONT GET MORE VIRUS, IF YOU LOOK BACK IN HISTORY IN PERIODS OF FAMINE WHICH WE WILL SEE YOU WILL OFTEN SEE LOTS OF SICKNESS

      think that’s the real worry

      You have to stay close by your home
      Will be very hard to drive
      Make sure you have a good relationship with your local small grocer

      Go warch documentaries on when food coupons were handed out after the war, I’m not sure the year but we will see a coupon system again

      Going to be very interesting times ahead

        • lol! yer but no but yer but boomtimes! BCN scenario too early again. not until end of 2023.

      • It’s time to set up your home veggie garden, rainwater tank, compost bed, raise some chickens, install solar and aim for a more self sufficient lifestyle.

      • TailorTrashMEMBER

        If the whole world is going to custard what is going to drive the demand for iron ore to push it up to $500 ton ?
        Presumably straya will still be pumping out same production to feed a cactus world economy ……so why the price boom ? Will my iron ore share retain value ?

      • People here place a lot of stock in a guy who predicted Trump would win and still thinks he did!

        Hope you’re enjoying these Jan 6 hearings Bcnich.

      • $5 petrol.
        I reckon we’re looking at $3L+ later this year. When the excise holiday ends and Biden stops the SPR rundown….
        And that’s before anything else happens, which oil around $200 will cause.

        • drsmithyMEMBER

          And thanks to the previous Governments, we’re probably 5 years behind other parts of the world in getting woke cars on the road to soften the blow of skyrocketing fuel costs.

      • Nostradamus!
        Has anyone stopped to ask what bcnich’s background is for us all to take any of this as gospel.

      • ^^ The world’s top central bankers have warned that the era of low interest rates and moderate inflation has come to an end following the “massive geopolitical shock” from Russia’s invasion of Ukraine and from the coronavirus pandemic.
        Speaking at the European Central Bank’s annual conference, Christine Lagarde, its president, Jay Powell, chair of the Federal Reserve, and Andrew Bailey, Bank of England governor, called for rapid action to curb inflation.
        They said failing to raise interest rates quickly enough could allow high inflation to become embedded and ultimately require more drastic action by central banks to bring price growth back to more moderate levels.
        “The process is highly likely to involve some pain, but the worst pain would be from failing to address this high inflation and allowing it to become persistent,” said Powell.

  3. Also I’ve looked back in history & you find at the start of recession & earnings downgrades like we will see the sharemarket actually outperforms in the first several months even up to a year as interest rates decline PE multiples expand. History doesn’t always repeat but I’d be careful being too short on equities
    Just worries me that everyone is now on the same side of the boat, sharemarket crash is a very crowded trade.

    Things are going to get very ugly especially in housing market

    You’ll have the pick of homes to buy next year, problem will be you most probably won’t bave a job & there may not be a bank to get a loan & they may not even allow sales of properties

    I’d now be more worried about bank bail in with labour $250k I think fine above $250k think big risk
    They’ll remove offsets redraws all sorts of things

    This is going to be an absolute debacle of historic proportions

    These imbeciles have created a mess, baby boomers who have created this mess are going to be the worst hit

    The irony they were feathering their own nest not knowing they were actually creating their own demise

    • The same parents who “helped” their kids to buy (thinking they’re doing the right thing), have also helped make it worse for themselves. They’re now on the hook for whatever “help” they gave while watching their own assets dive. Been saying for years I’d be happy to see my place drop in price because then younger people could get ahead and also I wouldn’t have to “help” my kids get into the housing ponzi that it’s become. Expensive property does not “help” a society.

      • That bank of mum & dad is going to turn into an absolute disaster
        When I read that article on here about RBA furious that banks used that emergency money to buy each others shares & that with the bank of mum & dad
        Everyone is going down holding hands

        • Arthur Schopenhauer

          There’s a lot of Super that can and will be used to bail out the over-indebted and by proxy, the banks.

          Shame, because it was intended to increase investment in productive industry.

          In retrospect, it’s hard to see how a bunch of spreadsheet jocks were ever going to have the gumption to put their assets in the real, brutally transparent and high risk world of making stuff.

          • 100%.
            Even when rates hit levels that on face value cannot be serviced, people can maintain high mortgage stress for a long time. Martin North’s stress trackers show this well. But as well as coping on the individual level, we opened Superannuation to help for the virus so the early access hardship provisions will be tapped hard again. So this future weath will be burnt off and only then will consumption really crash hard.

          • Arthur Schopenhauer

            @MG There’s at least 2 to 5 years of payments in most mortgage holders super. That’ll stave collapse over the medium term.

          • Most new home owners (especially recent migrants and self employed) have minimal super balances. Yet those are the people up to their eyes in debt. The other problem is a declining market makes bank demand more deposit, like NZ. The real strife is when it feeds into unemployment, except the inflation driven building industry collapse is already well underway before reduced credit conditions kicked in. So we may also get a settlement crisis just to ream the industry even harder.

    • Bcnich. Have you read the book ‘The End Of The World Is Just The Beginning’ I’d love to hear your thoughts as it data driven points contradict some of your predictions. Ie the book suggests that capital will become more expensive as Labour dries up.

      • Hey! You don’t compare the predictions of some data driven geek against the “visions” of Solar Sage. For he is solar driven.

        • I include the cycles of the sun in my analysis but I don’t write anymore because I know it upsets some of the more narrow minded people on here that don’t understand cycles & the interconnectivity of the world & solar system & how these factors all impact us & markets etc, remember these markets are just a connection of human emotion & are driven by these factors

          Clearly in solar minimum the sun changes temp that affects the ability to grow food & virus etc. this isn’t all a big coincidence

          • The traders at Banker Trust, San Fran used to be mindful of the lunar phases, noticing that strange things could happen at Full Moon. Not every one by any means, but enough to just be aware.
            Lehmann failing in 2008 was one, I believe.

          • ErmingtonPlumbingMEMBER

            The wife’s monthlies have a far greater influence on our household harmony that the cycles of the sun or moon!
            As a Libra I find these regular periods of disharmony very irritating.

          • Arthur Schopenhauer

            @Janet
            There is a always a spike in ER admissions around the full moon. 🌚

          • Janet, there is no evidence of any connection with the lunar cycle, none. lolol oh, except natural things like the bloody tides.

      • No I try to read & watch things that are happy. Feels there is enough chaos each time I go out

      • Given it was only released on the 14th of June I doubt it. I’m still waiting for my copy and Amazon is insisting it doesn’t release until August 3rd.

    • working class hamMEMBER

      The prediction of a fast paced rate rise, into a recession, followed by rate drops and then QE/ stimulus by Xmas is getting louder.
      Raising rates into recessions after significant world events has form in history, the expectation that the Govt will save them has risen exponentially, with Govts meeting that every time.
      The 4 majors will never be in trouble, the RBA will step in whatever the cost to Australian citizens. Maybe a few second tier lenders will be allowed to fail, but the captured nature of our political class will never allow nationalisation of a major institution.
      Just look at Qantas.
      The Irish example is a good one, many believe it can’t happen.

      • It isn’t the boomer’s fault. They took opportunistic gains as any generation would.
        It is the banks and the politicians they own that have looted the joint.

    • what makes you think housing will fall before crypto (aka. penny stock market 2.0) completely dies??
      any stock market falls will capitulate into housing – they allow destruction/creation (only) in this regard.
      I agree about the winners / losers thing tho.

    • Just watch the bond market that will tell you what the rba will do
      Bond market is in charge in periods of inflation not the rba

    • Absolute BeachMEMBER

      Yep. RBA will need to protect AUD. At 0.68 buying imported stuff is getting expensive. If the Fed goes up by 2 – 3% then we will. It’s baked in. So are asset price depreciations.

  4. pfh007.comMEMBER

    Horrified?

    If they really are horrified they have three options.

    1. Sell now and use the proceeds to buy a less expensive house or rent.

    2. Demand that Albo gives them money (cut taxes or HouseKeeper payments) to help them repay the debt peddling banks.

    3. Cut back on Wagyu and Shiraz

    The lunatic option is demanding that the RBA ignore inflation as it is not going to happen.

    • Arthur Schopenhauer

      Option 2 is the most likely, if it follows the pattern of previous responses. Would it also include the draining of Super?

      There would also be a “Grand Grown Up Toy” liquidation.

      • Facebook’s marketplace is where to capture that data.

        I’m on the lookout for a 28ft cabin cruiser, like Bayliner or mustang. The ‘dont want to give it away’ crew were exploitive with covid tax. Boats in my search were $30k-circa pre covflu, at price peak $60k+. Seeing some quality vessels for under $50k – when I can pay $25k cash I’m in!!

        Sth east Qld if anyone’s looking to offload one

        • Absolute BeachMEMBER

          Good call Mr Ram. I’m keeping my eyes on the near new jetskis on Gumtree etc. They are easy to put up for sale – like selling the family silverware back in the day. The pressure will be on to raise a quick $10 or 15 to make payments before the bigger stuff gets sold. Just like previous tightening cycles.

        • Arthur Schopenhauer

          I’m looking for a Noelex or the like. Something that doesn’t sit in the water all year.

      • #2 is great until RBA signals that this will just cause more inflation and they will just raise rates more to suck that money out too. Back to square 1.
        #1 and 3 are the only options that reduce actual debt in the system.

    • reusachtigeMEMBER

      Was chatting to an old prick who was telling me that back in the 70s and 80s inflation period eating steak was a rare luxury. Maybe a small portion of minute otherwise it was always sausages on the BBQ. Like all real blokes, I’ll take a good sausage any day especially if it’s exotic but let’s hope it never gets to giving up a thick slab of meat!

      • My uncle was an abbottoir butcher and worked through the 1990 recession raking it in. Fondly remember him walking down the driveway with a full length scotch fillet draped over his shoulder.

        “Oh not steak AGAIN!” I said, much to the amusement of my Grandfather who was a malnourished orphan during the Depression.

        • Ditto. In the 90s dad’s mate worked at the knackery in Darling Downs. We ate so much mystery meat.

  5. Fishing72MEMBER

    You’ve just got to know how to play the game. If food coupons are coming back you can bet your bottom dollar that the government will want to privatise the process. Now is the time to do an IPO on a food stamp printing business. Get in quick before competition for government contracts heats up….it’ll be raining cash-filled brown paper bags at the coupon licensing minister’s office this time next year.

    • ErmingtonPlumbingMEMBER

      More money to be made going long on firearm sales.
      It’s all good and well having your stash of govie doled out food for the family but how are you going to stop others from taking it from you?

    • Ronin8317MEMBER

      All the food will be exported to China. The big money will be building another port to import those food back at inflated prices.

  6. by 2030 you’ll be be eating Soylent Green and you will be happy! (Santa Klaus Schwab)

  7. Ah yes, here it is the 12:05 am daily story about the perilous state of the Australian housing market and how interest rates are smashing everything. Usually gets around 50-60 comments with Bcnich figuring prominently with his sunspots/ everything is connected, “I’m the ONLY ONE whose predicted this and why won’t anyone listen to me self martyrdom”, predictions.

    Don’t believe me?…go back and check the past 8 days at least.

    Newsflash hot shot- people have known this was gonna happen loooong before you. Nothing you say is original.
    And 2. Your boy Trump, despite your forecasts, did not indeed win, a fact you still have yet to accept.

    Seriiusly people.

      • Absolute BeachMEMBER

        That That
        And FYI I don’t want to buy a jetski – I just use the ‘jetskis for sale’ metric for the health of the FNQ economy. Jetskis are the mosquito of the ocean…

  8. Ah yes, here it is the 12:05 am daily story about the perilous state of the Australian housing market and how interest rates are smashing everything. Usually gets around 50-60 comments, Bcnich figuring prominently with his sunspots/ everything is connected, “I’m the ONLY ONE who’s predicted this and why won’t anyone listen to me self martyrdom”, predictions.

    Don’t believe me?…go back and check the past 8 days at least.

    Newsflash hot shot- people have known this was gonna happen loooong before you. Nothing you say is original.
    And 2. Your boy Trump, despite your forecasts, did not indeed win, a fact you still have yet to accept.

    Seriously people.

    • In the old days when traffic was slow they’d chuck up something about global warming or how private schools are better than public or vice versa.

      • Yeh, the MB boys should focus on WA and how well things are going over here. But that doesn’t get the clicks…
        You know you want to come over.

        • 2023HomelessMEMBER

          You’re right. No one cared when the WA economy collapsed post mining boom. And house prices ground down around 20% over a decade. Certainly no gov bailout or access to super for the west Mexicans.

          Must really be annoying watching everyone assume the east coast will get special treatment as it has its property correction….

          Personally, I think the east coast market is cooked and any government assistance will arrive too late. The baked on inflation in energy in 2023, with another 3 months data delay due to stupid ABS schedules, will mean rates rise until end of Q1 2023. By then, Sydney, Melbourne and Canberra will be down 20%, and buyers won’t jump back in like past corrections as unemployment will be rising in a recession and banks will require higher deposits (like happened in mining towns in WA).

          So sit back, enjoy retribution for you and your fellow west Mexicans (FYI, I’m Perth born)

        • Flying over on Sunday to visit some training facilities and will spend an extra night thanks to Qantas cancelling my return flight. Looking forward to experiencing some warmer weather. Adelaide has been a fridge this last week.

  9. “Mortgage stress is the greatest amongst 25–34 year-olds and 35–44-year-olds,” ummm ok so just had to fill the word amount content with that one….not being picky or such but couldn’t just say people between 25-44!

  10. I must have missed something: 20% are going to refinance while 13% will lock in a fixed rate!! How does that relieve mortgage stress. Plus 8% will do “none of the above”, they won’t experience mortgage stress as some have nominated, they’ll just do NOTHING!

  11. mortgage stress, defined as a homeowner or household using more than 30% of their net income to meet mortgage repayments

    Entering $100k salary and HEM expenses into a CBA mortgage calculator it spits out a repayment amount of 40% of net income. Stump up 20% deposit and they will lend out an amount equivalent to 50% net income mortgage repayment.

    That is with a comparison rate at 5%. If mortgage rates were to subsequently rise to 7% the repayments rise to 60% of net income. Now imagine all the suckers who took advantage of Scomo’s hare-brained 5% deposit scheme when mortgage rates were much lower.

    • Summo’s 5% FHB scheme is a disaster in the making. Everyone of them will (some may already be) in negative equity as well as under serious mortgage stress. This is also the cohort whose incomes are likely to be hit hardest by any slowdown in household spending. What Scummo did is both a national tragedy and scandal.

      • Oh Totes where art thouMEMBER

        I know it’s easy to blame Scotty for this, given he was the front man. However the “genius” behind this is Michael “Shady” Sukkar who only believes in shifting risk to the taxpayer and blaming state/local government for all housing woes.

        • I think Sukkar is a grub but he is a fair way down the totem pole in the liberal party heirarchy. These schemes got up because Scummo ok’d them.

          • Oh Totes where art thouMEMBER

            It’s a mistake in my opinion to underestimate Sukkar’s influence in the back rooms. Sure Scotty would have ultimately signed off, but Sukkar’s ideology was behind it.

    • Jumping jack flash

      HEM is the “great leveller” in that it levels out everyone’s income to be the “same”. It doesn’t matter if you’re on 60K or 160K, after debt repayments you’ll all have the same amount of disposable income.