Are Aussies growing complacent around interest rates?

FBAA managing director Peter White has revealed shock at the survey’s findings – highlighting his dismay that 57 per cent of people said they would not be able to meet a monthly increase in their rent or mortgage of $300.

Voicing concern that Australians have grown complacent after over a decade without a rate rise, he said a $300 mortgage or rental increase is “equivalent to only 1 per cent based on the average home loan”.

“One per cent is not a large increase. It will happen, and with the RBA recently deciding not to intervene to stop increasing yields on three-year government bonds, it will likely happen soon.

“Many Australians are clearly on the brink and are sleepwalking into disaster, living in the false hope that rates will stay this low,” Mr White continued.

“My message to Australians is that we must be better prepared.”

While borrowers have rightfully taken full advantage of historically low rates and low deposit schemes for home ownership, the managing director has warned that it could lead to “a lot of people in real trouble”.

“The housing market has soared, and there is a reasonable chance will undergo a correction, meaning that those with low deposits who have stretched themselves to make large repayments could see themselves with negative equity, owing more than the value of the property,” he cautioned.

Mr White said that based on the history of interest rates, the only way is now up.

From his perspective, “the housing market is over-heating and the banks, regulators and government are already talking about lifting the floor rate (a higher rate used to calculate repayments) to slow borrowing”.

Alongside recent fixed rates rises, the director said all the signs point to rising interest rates.

And then this happens; it won’t just be the low-income earners who feel the effects, Mr White pointed out.

Almost one in two (46 per cent) of those surveyed who said they couldn’t meet a $300 per month repayment had reported a combined gross weekly income between $2,000 and $3,000.

So how should Australians be preparing for the inevitable rate hike?

While there’s no need to over-react, Mr White said, “we do need to take an honest, balanced and informed approach”.

His advice to borrowers? “Don’t over-commit yourself, and don’t go deep into payday loans, personal loans or credit cards because rates will rise. Borrowers and renters need to have surplus funds to pay an increased amount.”