Rate rise reprieve urged as inflation falls

Most home owners are weighed down by the burden of a mortgage, so it’s no wonder there is some fear in the market after being promised that interest rate rises would not happen to 2024.

With inflation dropping to its lowest level since the March quarter last year, borrowers deserve an extended interest rate rise reprieve as cost-of-living pressures mount, according to one of the nation’s most awarded mortgage brokers.

According to the Consumer Price Index for the June quarter, headline inflation fell to six per cent in June from seven per cent in March, which was weaker than market expectations of 6.2 per cent and lower than the RBA’s official forecasts.

Zippy financial director and principal broker Louisa Sanghera said headline inflation had now fallen nearly two percentage points in just two quarters.

“In the December quarter last year, inflation was 7.8 per cent, but it is now six per cent, which is a significant drop in a relatively short period of time.

“Trimmed mean inflation, which is the RBA’s preferred measure, has also dropped from 6.9 per cent to 5.9 per cent over the same period – again, a result that was lower than expected.

“What this shows us is that the fastest increase in interest rates in a generation has drastically reduced consumer spending as homeowners struggle to pay their mortgages and keep food on the table.

“There is no question that borrowers now deserve an extended rate rise reprieve.”

Ms Sanghera said interest rates were at the highest level in more than a decade, meaning many borrowers were also stuck in mortgage prison.

“The June cash rate increase was the straw that broke the confidence, and financial security, levels of many borrowers.

“Some borrowers who may have been over-zealous with their lending during the pandemic are now very worried whether they will be able to continue to service their mortgages, with some making poor financial choices – such as selling – because of their increasing financial stress.”

Ms Sanghera said borrowers who worked with brokers that stress-tested their lending applications on their actual expenses over recent years were generally in better financial positions.

“Unfortunately, when property markets are booming and there is an element of FOMO among buyers, sometimes this can lead to people purposefully under reporting their household expenses so they can qualify for higher loans to purchase a new home.

“The fallout of this mindset is that people may wind up borrowing more funds than they can realistically service when interest rates return to more normal historical levels.

“Of course, the rapid increase in mortgage repayments left many of us a bit breathless, with a rising number of borrowers clearly now in financial stress because of it.”

Anecdotal insights and feedback from the Mum CFO platform showed the serious financial situation many households are now in:

About 80 per cent indicated they were concerned about their ability to pay their mortgage if interest rates continued to rise with 43.4 per cent saying they were very concerned

About 24 per cent indicated their total mortgage repayments had increased more than 50 per cent over the past year

About 36 per cent indicated that they were now spending more than 51 per cent of their total household incomes on mortgage repayments with a further 22.9 per cent spending between 41 and 50 per cent, and

About 53 per cent indicated they were unable to refinance their mortgage to benefit from better terms, such as lower repayments, due to the high interest rate environment.