Australians Sleepwalking Into a Financial Disaster: Expert

A property is seen for sale in Sydney, Australia, Sept. 1, 2021. AAP Image/Dan Himbrechts

A survey commissioned by the Financial Brokers Association of Australia (FBAA) revealed that three-quarters of Australians believe that a one percentage point rise in interest rates would put pressure on their financial situation.

“Many Australians are clearly on the brink and are sleepwalking into disaster, living in the false hope that rates will stay this low,” FBAA managing director Peter White said in a statement.

The survey of 1,004 respondents, found that 57 percent said they would not be able to meet a monthly increase of $300 in their rent or mortgage.

“One percent is not a large increase. It will happen, and with the RBA recently deciding not to intervene to stop increasing yields on three-year government bonds, it will likely happen soon,” he said. “My message to Australians is that we must be better prepared.”

White said borrowers had taken advantage of historically low mortgage rates and government subsidies that have helped many Australians purchase their first home.

However, he warned that the housing market has ballooned, and there would be a reasonable chance it would undergo a correction, meaning some households with low deposits and stretched finances will see themselves owe more than the value of their property.

“We don’t need to overreact, but we do need to take an honest, balanced and informed approach. I'd say to borrowers, don’t over-commit yourself,” White said. “Borrowers and renters need to have surplus funds to pay an increased amount.”

All four of Australia’s “big four” banks have already hiked their fixed interest rates ahead of speculation that the Reserve Bank of Australia (RBA) will soon lift the cash rate.

However, RBA assistant governor for economics Luci Ellis told a parliamentary inquiry on housing affordability and supply that a majority of borrowers would not feel a large impact when rates begin to rise.

“If and when rates do eventually rise, a lot of them will not have to raise their actual repayment because they have already paid more than they need to,” Ellis said.

Prime Minister Scott Morrison said the current inflationary pressures in the U.S. highlight that Australia’s economic recovery needs to be secured by “people who have a track record in economic management.”

“Otherwise you’re going to see petrol prices go up, you’re going to see electricity prices go up, you’re going to see interest rates go up, more than they would need to otherwise,” Morrison told reporters. “That’s why economic management is so important now as we come out of COVID.”