Effect of interest rate hikes - are you feeling it?

virhlpool on 29/04/2023 - 18:03
Last edited 03/05/2023 - 18:44

Hi OzBargainers! This is a hot topic at the moment and it's hard to ignore. Whilst on one hand I see people spending money on literally everything (houses, holidays, shopping) like there's no tomorrow, on the other hand media has been making the interest rate hikes a big deal (even though RBA seems to have been much less aggressive/ decisive than the other central banks) and then there's news about layoffs (at a very small scale yet) and softening job markets. As if this isn't perplexing enough, my every visit to a shopping centre or a mall gives me a bigger shock about the price increases - 30% price hike in 3 years sounds 'mild' now when some products have almost 60%-70% higher prices and yet I don't see people at large complaining about it (or rent increases for that matter).

Things are no different on the housing front. Some economists predict price rises in the near future whilst others predict a fall. People are still very optimistic about price trajectory and don't seem to hesitate to take $1m-$2m loans even at 6% interest rate, demonstrating that a huge population, at least in the major cities, still has an ability to repay $8,000-$10,000/ month towards the home loan despite such a sharp increase in overall cost of living.

I was wondering if there is a huge number of people who have started feeling the pain (though it doesn't look like if you visit any stores) OR not yet. Whilst obviously no one has a crystal ball, it will be insightful to hear thoughts of savvy OzBargainers on the current state (and direction) of economy, inflation, property market, etc. Feel free to share your ground-level observations as well, if any. Media can be biased so a neutral voice can be often more interesting. Thanks!

P.S.: Added a poll later so there are only a few responses. Your vote is welcome!

Poll Options

  • 158
    No, I don't feel the pain. I continue to live like before and my saving/ buffer is still decent.
  • 172
    Yes, I feel the pain and my saving has shrinked but I have a large enough buffer so it's ok.
  • 63
    Yes, I feel the pain and my saving/ buffer has shrinked significantly. I'm worried.
  • 12
    Yes, I am in stress and actually struggling financially.
Financial

Comments

  • Dack Smith on 04/05/2023 - 12:12
    +3

    Australia is the lucky country - demand is so high for everything that the current rates are not doing much.

    The media spin about people crying and all seems to be BS

    Rates will need to go up beyond 15% for people to take some notice.

  • dlakers3peat on 04/05/2023 - 12:58
    +1

    Can somebody please explain to me, why is it the responsibility of mortgage holders to help curb inflation and get stung financially. My understanding is only 35% of the population has a mortgage so that leaves 65% of the population who don't get effected by these interest rate rises.

    The only thing i can see here with these interest rate rises are the banks are greedily profiteering with record profits, while the average australian has to now struggle to make their repayments.

    What a flawed system.

    To answer your question i feel it definitely, but i am dual income household so probably not as much as other people

    • virhlpool on 04/05/2023 - 13:03
      +1

      RBA's interest rate hike isn't only relevant for mortgage holders. It basically increases the cost of money in the financial market and affects all the industries. Home loan borrowers is a very small part of the game (think of companies and institutions borrowing big money etc).

      Also, RBA isn't doing anything extraordinary. It is just bringing the cash rate back up to the normal levels, which was kept historically low for 3 years to boost the economy during the pandemic. The economy got boosted way too much and the cost of living has gone out of control so RBA has to fix it to get the situation back in control. Hardly anyone is getting 'stung' yet if you see the poll results of this post, except may be a few who borrowed beyond their means really. Repayments weren't supposed to be that low in the first place. Now they are only getting back to the normal levels slowly.

      • dlakers3peat on 04/05/2023 - 15:47
        +1

        Here is another thing I don't get is, if I borrowed my money 2 years ago when interest rate at 2.5% or so, why do i have to know pay the current rate? The bank already got this funding at that rate so now they are basically just make a huge profit on the increased rate.
        One thing i applaud the USA for is, the have the majority of mortage holders are on 30 year mortages at whatever the interest rate is at the time. So people who took out mortages at 2.5 per cent 2 years ago, the rate is fixed for 30 years. Banking system in australia is a scam only here to benefit the banks.

        • virhlpool on 04/05/2023 - 15:58

          They both are different products/ systems - you will know how it works if you Google (e.g. https://www.rocketmortgage.com/learn/fixed-rate-mortgage). US banks don't do social service either; there are in business and make huge profits; it's just that the loan product you are referring to is designed differently.

          Here is another thing I don't get is, if I borrowed my money 2 years ago when interest rate where at 2.5% or so, why do i have to know pay the current rate. The bank already got this funding at that rate so now they are basically just make a huge profit on the increased rate.

          Interest on the funding isn't a static thing, that's why it's called variable interest loan. Banks aren't borrowing at a static rate either. Your rate of 2.5% at that point doesn't mean anything for the next months/ years to come. Cost of money in the market keeps changing and it affects your variable loan's interest rate (and banks' borrowing rate too). Banks keep a small margin (i.e. profit).

      • dlakers3peat on 04/05/2023 - 15:57
        +1

        @virhlpool so based on what you have said the interest rate increases are not working because if $1400 a month is not effecting people then either people are very rich or not telling the truth.

        • virhlpool on 04/05/2023 - 15:59

          So must be true! That's exactly something I or you are pondering on..

  • Sweet3st on 04/05/2023 - 19:35
    +1

    Just received the bill from my accountant for preparing my business tax return. A 20% increase over last year! Everyone is jumping on this bandwagon… crazy times…

  • MrBillions on 06/05/2023 - 19:44
    -2

    Clearly lifting interest rates is not working and has to stop.
    Realestate listings drop them house sales are going up due to shortages and immigrants back in the market now again. Shortages and higher interest rates also drive rents up.
    There are more immigrants back in Australia. The prices of goods are higher. So the individual is not spending more but more people are spending on goods that cost more.
    Does this dude want to drag us into a recession? Come up with something else than interest rate rises. They are now high enough and need to come back down again.

    • MondaySleeper on 07/05/2023 - 09:22

      So other options like ending CGT concession, negative gearing OK? Sad truth is that the governments so far created this situation and a shake up needed to settle the things. Like it or not.

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