The vast majority of Australian home owners were preparing for higher interest rates in the lead up to the Reserve Bank’s (RBA) decision to lift the cash rate to 0.35 per cent last month.
Research conducted by the Commonwealth Bank (CBA) indicated that over 90 per cent of home owners had taken steps to reduce the impact of higher mortgage rates ahead.
Reducing living costs was identified as the top action taken by 47 per cent of respondents while 42 per cent said they had been building up their savings.
“We know that one in two CommBank customers are more than three months ahead of their home loan repayments and it’s encouraging that the majority of Australian home owners 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,” commented CBA executive general manager of home buying Dr Michael Baumann.
Other actions taken by the surveyed home owners included making additional repayments on their home loan (38 per cent), putting money into an offset or redraw account (37 per cent) and looking for cheaper providers of utilities or services (33 per cent).
CBA also noted that home loan splitting activity at the bank had more than doubled since the start of last month with many customers shifting to fixed rates.
The May rate rise was the first hike since November 2010 and the first change since the RBA decreased the cash rate to a record low of 0.1 per cent in November 2020.
At the RBA’s board meeting next week, CBA expects the central bank will deliver another 25-basis point hike, bringing the cash rate to 0.70 per cent.
CBA head of Australian economics Gareth Aird said that the March quarter wage price index indicated that the RBA was not facing a prices-wages spiral like that seen in other jurisdictions and does not need to run hard against wages growth through aggressive hikes.
“In addition, the optics of delivering a larger than 25-bp increase in the cash rate in June might imply that the RBA board has changed their assessment of the outlook for inflation and/or inflation risks based on the change of government,” he added.
However, Westpac chief economist Bill Evans has stuck to the view that a 40-bp lift in June would be the best policy option to avoid falling behind the curve.
“Some of the lead indicators of a wage price spiral are emerging – businesses confident of more pricing power - no longer limited to cost control; unions making ‘indexation’ style wage claims; supply shocks impeding the demand control policies available to central banks; and rising inflationary expectations,” he said.
“The board needs to be vigilant and proactive.”
The RBA previously confirmed it considered a hike of 40 basis points for May.
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
