RBA deals massive increase in mortgage payments


The Reserve Bank of Australia (RBA) may have increased official interest rates by less than other advanced nations:

Monetary policy tightening

However, this hasn’t stopped Australian households from experiencing one of the sharpest increases in mortgage repayments in the world:

Changes in mortgage rates

Australian households have seen their principal and interest debt repayments soar over the past two years:

Debt service ratios

Only Norwegian households have experienced sharper rises in mortgage rates and debt repayments:

Household debt service ratio

The reason for the larger increase in Australian debt repayments is obvious: Australia has one of the highest shares of variable rate mortgages in the world, whereas our fixed-rate mortgages tend to be for relatively short-durations of three years or less:

Fixed rate mortgage share

The upshot is that Australian households have seen their mortgage interest charges explode to an all-time high that is nearly four times the level of 1998:

The above charts explain why the RBA is operating one of the tightest monetary policy regimes in the world, despite hiking official interest rates less aggressively than other central banks.


Australia’s high share of variable-rate mortgages has meant that rate hikes have been passed directly onto mortgage holders, resulting in a massive rise in repayments.

Given the collapse in Australian household disposable incomes and spending, the RBA will be reluctant to raise rates further.

Rate cuts may have been delayed by last week’s higher-than-expected CPI inflation print. However, the next move in the official cash rate is still likely to be down.


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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.