After the Reserve Bank of Australia’s announcement to increase the cash rate target by another 25 basis points on Tuesday, 7 February to 3.35%, there are continued predictions that mortgage holders will face difficult times ahead.
The RBA’s reasoning to increase interest rates further is due to high inflation figures which is increasing the cost of living, and, while mortgage- holders will bear the brunt of rising interest rates, it is the rising cost of living that affect us all. This means there are budgetary pressures on household spending, particularly in households that have no savings buffer.
“If you took out a variable mortgage of $500,000 more than a year ago, then the last nine interest rate rises by the RBA means you’re likely to be spending around $800 more per month on repayments,” says Iresha Lehane, Financial Counselling Manager at Lifeline Northern Beaches.
“For some, who took out $1 million mortgages at a fixed rate of 2%, the interest rate may increase to almost 6% once the fixed rate period ends. This would increase repayments from $20,000 per year to $60,000 – in increase of $40,000 a year.”
Recent reporting about mortgage payments that are more than 30 days overdue, suggests that the highest numbers of mortgage-holders who may fall behind in their repayments on the Northern Beaches due to further increases are in Brookvale, Curl Curl, Cromer and Terrey Hills.
Inflation is the other part of the story, with the price of food, petrol, electricity, rent, goods and services all increasing significantly.
According to the RBA, “CPI inflation over the year to the December quarter was 7.8 per cent, the highest since 1990. In underlying terms, inflation was 6.9 per cent, which was higher than expected.” And, while the RBA expects inflation to slow, it is more than likely that interest rate rises will continue over the coming months.
“We understand the stress that financial difficulty can place on people. It’s important to assess your options and speak to your bank if there are issues with you meeting your financial obligations,” continues Iresha. “You may be able to access hardship provisions through your bank or lender.”
“If you’ve contacted your bank, there are also support services available that you can contact, like the National Debt Helpline or Lifeline Northern Beaches Financial Counselling.”
Finding it difficult to service your debts? Call the National Debt Helpline on 1800 007 007.
Lifeline Northern Beaches offers free Financial Counselling, visitlifelinenb.org.au/get-help to find out more.