The bank warning in Australia has informed that in the next six months, mortgage will rise. Even if the circumstance where cash remains unchanged, the sign remains true, says the Commonwealth Bank. In an economics committee meeting as part of a Thursday review of the four central banks in Canberra, the bank also predicted that unemployment would rise to 4% if inflationary pressures persisted.
Matt Comyn, chief executive, via a video link, has announced that different cohorts of Australia are reacting to the cost-of-living challenges brought about by rising inflation and interest rates.
He told the committee that little over 60% of the impact of the 12 rate hikes since last May had already passed through the Australian economy, implying the likelihood that mortgage will rise in the coming months – even if interest rates were not higher. The bank predicts the Reserve Bank will take the rates one notch higher this year.
Comyn said, “With each subsequent cash rate increase, that will put additional pressure (on households).” He continues, “I don’t say that as a criticism. I think its entirely appropriate… (given) the risks of persistently high inflation.”
He goes on to explain the bank warning in Australia that households will feel pressure to keep up with paying mortgage payments. He estimates that by the end of the year, around 85 per cent of the damage would have passed through the economy, putting further strain on households.
Comyn says, “So youll continue to see more pressure in householdsover the course of, lets say the next six months, even if there is no further increase in the cash rate, just simply as more customers are coming off fixed rates, rents are continuing to increase, their energy prices continue to go up.”
“So its going to become challenging and therefore consumption will slow down, the economy will slow.”
Comyn mentioned that most of the youngsters that had purchased their first home during the pandemic – when the cash rate was dangerously low – had to decrease their spending over the past year to keep up with their loans.
“A third have reduced (spending) by more than 30 per cent year on year. “Many households are pulling back on discretionary spending and dipping into accumulated savings,” he said.
Closing Thoughts – Bank warning in Australia
He said that renters were facing the brunt of monetary policy, not only mortgage holders. According to the bank’s analysis, tenants aged 25 to 29 who met steep rental hikes cut back on their spending more than any other cohort.
He also stated that young renters are less inclined to save than the general population due to excessive spending on the essentials. Meanwhile, another bank has announced a significant rate increase.
Virgin Money’s selected owner-occupied and investor fixed-rate loans, applied for total new borrowings of $300,000 or more from Friday on, will experience a 0.60 per cent hike. A fixed investment – interest-only loan will see an increase of 0.80%. Existing fixed or variable-rate loans will not be affected by the modifications.
