Chapter 1: What recent changes have occurred with the RBA cash rate?
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Well, the interest rates have risen five times in five consecutive months, causing a lot of stress and a lot of pain for the Australian mortgage borrower. And that's despite, of course, at the end of 2020, the Reserve Bank Governor Philip Lowe saying that interest rates probably wouldn't rise until 2024. Wow, so much water has flowed under the bridge since then.
And the last time that rates rose this fast was back in 1994, when the Reserve Bank of Australia hiked the rates from 4.75% to 7.5%. So let's welcome in Simon Kustenmaha from the Demographics Group. G'day there, Simon. Great to have you on the podcast.
Chapter 2: How are rising interest rates affecting Australian mortgage borrowers?
Great to be back. Well, they have made their call, the RBA. They have decided to go a little bit softer, which is interesting. It's what I was predicting for this month, 25 basis points instead of the 50.
Well, that's the result, I guess, that many economists were hoping for a relatively low increase in order to slow the negative effects on the mortgage owners in particular.
And more Australians right now, they're in negative equity as, of course, house prices are falling. So that's kind of like a double whammy.
It certainly is. And we've seen this before, though, in the Western Australian market, where at the height of the mining booms, lots of people purchased very expensive homes and they went into negative equity for years. probably four or five years, if not longer, which is psychologically an absolute nightmare.
But in the long run, if the market continues to recover and house prices continue to go up, then it was just an uncomfortable period of time and the property ultimately will still have turned out as a big win. But that's easy to say with the power of hindsight rather than when you're stuck in the moment.
Yeah, and just having a look at the interest rates, of course, this is where internationally, if you look at what is happening in the US and those fixed rates, the whole mindset is completely different in the US versus Australia. And if Australia had more of the fixed rate mentality rather than the variable rate, things would be much different.
Exactly. And that's the problem with the current mortgage holders that we are in a market where almost all rates are variable or almost most rates are variable. And that then means that you are essentially a victim to those rate changes that might come when a market where you already sign up for
30 years, you sign a rate and it's valid for the next 30 years as in the US, you're not as much of a victim to the changing circumstances over those three decades. It might all play out to be the same over the period of a long loan of 30 years. But again, with a fixed term, you don't have those absolute strong pain points as we have at the moment.
That said, at the moment, we are not on crazy high interest rates. The interest rates are still, in the long-term international comparison, relatively low. They're not outrageously high figures. It's just that we got used to very, very low interest rates over a very long period of time in Australia.
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