Why a surprising number of Australians want interest rates to go up

Almost one in three Australians want the Reserve Bank to raise interest rates even though it would lead to borrowers paying $560 a month extra on their loan within a year.

Runaway property price rises have caused Sydney’s median house price to surge by 30.4 per cent in a year to an even more unaffordable $1.334million as of October, CoreLogic data showed.

With a 20 per cent deposit of $266,753, someone would still owe the bank $1.067million and be paying almost $5,000 a month in mortgage repayments.

With many younger and middle-income Australians locked out of the housing market, record-low interest rates are being blamed for an overheating market and a sizeable minority want monetary policy tightened to rein in price growth.

A surprising number of Australians want the Reserve Bank to raise interest rates even though this would lead to borrowers paying $560 a month extra on their loan within a year (pictured is a house at Toongabbie in the city’s west)

House prices keep surging in Australia

SYDNEY: Up 30.4 per cent to $1,333,767

MELBOURNE: Up 19.5 per cent to $972,659

BRISBBANE: Up 24.8 per cent to $731,392

ADELAIDE: Up 22.5 per cent to $591,558

PERTH: Up 16.7 per cent to $550,044

HOBART: Up 27.2 per cent $726,955

DARWIN: Up 17.1 per cent to $567,056

CANBERRA: Up 29 per cent to $985,040

Source: CoreLogic data in median house price increases in the year to October 2021

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Almost a third, or 29 per cent, of the 1,280 consumers polled last month by financial comparison group Canstar want the Reserve Bank of Australia to raise interest rates, with the cash rate on Tuesday left on hold again at a record low of 0.1 per cent.

Canstar group executive of financial services Steve Mickenbecker said an initial rate rise would be likely to be followed by others, which would see the cash rate rise by 1 percentage point within a year.

‘It may be a case of be careful what you wish for for the almost one in three Australians who would welcome interest rate increases, as the pursuant mortgage stress would be quite a drag on the economy beyond housing prices,’ he said.

Should mortgage rates rise by 1 percentage point, someone borrowing $1milllion with an average standard variable rate of 3.1 per cent would see their monthly repayments rise by $561 within a year to $4,826.

The Reserve Bank has repeatedly promised to keep the cash rate on hold at a record low of 0.1 per cent ‘at the earliest’ and did so again on Tuesday at its November meeting.

But Governor Philip Lowe issued a statement on Tuesday hinting the central bank may increase rates in late 2023.

‘The Board is prepared to be patient, with the central forecast being for underlying inflation to be no higher than 2.5 per cent at the end of 2023 and for only a gradual increase in wages growth,’ he said.

Both measures of underlying inflation grew by 2.1 per cent in the year to September, which was on the low side of the Reserve Bank’s 2 to 3 per cent target.

With many younger and middle-income Australians locked out of the housing market, record-low interest rates being blamed for an overheating market with a sizeable minority wanting monetary policy tightened to rein in price growth (pictured are shoppers in Sydney’s Pitt Street Mall)

This measure strips out volatile items like petrol prices which, in recent weeks, have risen on average to $1.72 a litre in Sydney and Melbourne for the first time. 

With big price rises included, headline inflation also known as the consumer price index rose by 3 per cent. 

‘Inflation has picked up, but in underlying terms is still low, at 2.1 per cent,’ Dr Lowe said.

‘The headline CPI inflation rate is 3 per cent and is being affected by higher petrol prices, higher prices for newly constructed homes and the disruptions in global supply chains. 

‘A further, but only gradual, pick-up in underlying inflation is expected.’

KPMG chief economist Dr Brendan Rynne said borrowers with a standard variable mortgage rate would end up paying more, even as the Reserve Bank left the cash rate on hold.

The Reserve Bank has repeatedly promised to keep the cash rate on hold at a record low of 0.1 per cent ‘at the earliest’ and did so again on Tuesday at its November meeting. But Governor Philip Lowe issued a statement on Tuesday hinting the central bank may increase rates in late 2023 (pictured is the RBA building at Martin Place in Sydney)

‘It will not stop the cost of borrowing from rising from now on, as retail banks lift lending rates in response to higher wholesale market lending costs,’ he said.

Canstar group executive of financial services Steve Mickenbecker said an initial rate rise would be likely to be followed by others, which would see the cash rate rise by 1 percentage point within a year

A professional earning an average, full-time salary of more than $90,329 a year is already in mortgage stress paying off a typical Australian home despite interest rates being at record lows.

They would struggle to pay their bills, because the Australian Prudential Regulation Authority considers a debt-to-income ratio of six or more to be risky.

In the year to October, Australia’s median property price surged by 21.6 per cent to $686,339, with new CoreLogic data showing the fastest annual increase since early 1989.

That means someone buying a typical home, with a 20 per cent mortgage deposit factored in, would owe the bank $549,071. 

APRA, the banking regulator, now requires a lending to assess a borrower’s ability to cope with a 3 percentage point increase in mortgage rates, with the new rules coming into effect on November 1. 

Source: DailyMail

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