Are home owners prepared for interest rate rises?

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on May 31, 2022 Fact Checked
Are home owners prepared for interest rate rises?

New research from CommBank revealed that more than 90% of home owners were preparing for a rate rise before the RBA moved.

From the 1,072 people surveyed in April 2022 - before the RBA increased the cash rate in May - most were already taking steps to mitigate the impact of higher mortgage repayments.

Almost half (47%) said they reduced their living costs; 42% built up their savings; 38% have been making additional repayments; and 37% have been stashing money in an offset/redraw account.

CommBank's Executive General Manager of Home Buying Dr Michael Baumann said that one in two CBA customers are more than three months ahead on their home loan repayments.

"It’s encouraging that the majority of Australian homeowners are taking proactive steps to continue to improve their financial position with rates expected to continue to increase over the next 12 to 18 months," Dr Baumann said.

"We have seen higher splitting activity and a shift to fixed rates in response to the recent cash rate increase as customers explore their options. Since the start of May splitting activity has more than doubled."

RBA data also shows the average variable-rate owner occupier borrower is 21 months ahead on their mortgage - pre-pandemic it  was 10 months.

A rise of 2 percentage points could see the buffer dip to 19 months. 

House prices to fall 10%?

Today, Dr Baumann spoke at the Australian Financial Review Banking Summit, and said CBA forecasts a roughly 10% fall in house prices.

Previously, Westpac chief executive Peter King and chief economist at AMP Shane Oliver both predicted house price falls of 10 to 15% in the next two years.

HSBC's chief economist Paul Bloxham also tipped house prices to fall 10% next year. 

Read more: How much are house prices tipped to fall?

Dr Baumann also said the RBA has a "tricky job", and that a lot of customers will see their fixed rate home loans roll over this year - potentially to a higher interest rate.

"What we’re seeing right now is tightening interest rates will have an impact on the repayment demands for our buying customers, but a lot of people are fixed over time," he said.

"You will see another effect where they moved from a fixed interest rate... we are slightly more conservative when it comes to cash rate increases."

CBA has approximately $89 billion worth of fixed loans rolling off in 2023.


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Lender

Variable
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Variable
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Variable
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Neat Variable Home Loan (Principal and Interest) (LVR < 60%)

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Variable
More details
NO ONGOING FEES
  • No ongoing fees - None!
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Yard PAYG Home Loan (Principal and Interest) LVR ≤ 80%

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Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of August 11, 2022. View disclaimer.


Image by Braden Collum on Unsplash



Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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Rachel is a Finance Journalist, and joined Savings in 2021. Coming from a background in the FinTech space, her interests include the innovation of lending technology, property, investing, and more. With a passion for educating and informing people about their finances, she hopes to increase the financial literacy of everyday Australians.

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