Weekend Gold Coast Bulletin - Property

Rate rises? We can’t afford it

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IN less than two weeks, the RBA is likely to increase mortgage interest rates again. One rate rise of 0.25 per cent was a shock to borrowers’ systems. Two or three rises will put some into a financial emergency. But 10 of them, to a predicted 2.5 per cent in 2023, would mean death to many mortgages. And that is why it won’t happen. The RBA uses its official interest rate as a lever to speed up or slow down inflation. It had been cutting rates for years because inflation was persistent­ly below the 2-3 per cent target range it sees as ideal.

But now that inflation has spiked to 5.1 per cent, the RBA is lifting rates to put the squeeze on household spending.

Digital Finance Analytics principal Martin North measures mortgage stress across all Aussie postcodes and says 40 per cent of home loan households are already under stress.

When people stop spending, shops generally stop putting prices up, so inflation growth will slows.

Economists’ tough talk in early May of 2.5 per cent rises already seems to be weakening as consumer sentiment sinks.

The boss of Australia’s biggest bank, the Commonweal­th Bank, has forecast the RBA rate to go to 1.6 per cent, while REA Group senior economist Eleanor Creagh has said “I don’t think the RBA will be able to be anywhere near as aggressive as some are forecastin­g”.

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