Original Coverage & Source Attribution: www.news.com.au
One of Australia’s leading economic voices is urging frustrated mortgage holders to “fight back” against higher interest rates, as the Reserve Bank is forced to put the squeeze on households.
On Tuesday, the Reserve Bank lifted the cash rate for the fifth time this year, taking the cash rate to 4.85 per cent – its highest point in 18 years.
In response, Compare the Market economics director David Koch urged households to “fight back” against rising interest rates.
“My advice? Fight back, put the kids to bed, sit around the kitchen table and go through the big bills as a family,” Mr Koch said.
“Energy, car insurance, home insurance, health insurance, phone, subscriptions and, most importantly, your mortgage. Don’t just accept what you’re paying.”
He said while couples were probably not going to save thousands of dollars on a single bill, shaving off a little bit across multiple different expenses would add up to “serious money” over a year.
RBA governor Michele Bullock admitted Australians would be hit hard by the decision and will feel like the country is in recession over the next year.
“I think that is going to make it feel (like) it’s a recession because they feel poorer,” Ms Bullock said after announcing the fifth rise this year on Melbourne Cup Day.
“Their spending can’t grow very quickly because their incomes aren’t growing very quickly. “And this is a manifestation of the lack of productivity growth and the fact that we’ve had this massive supply shock imposed upon us and we’re all poorer.”
Kitchen table chat could be best weapon against rising rates
According to Compare the Market, Australians with an average loan of $731,000, are paying $114 more per month for each 25 basis point increase.
When the five rate hikes this year are all added up, mortgage holders are paying $584 more per month or $7,000 more a year, so instead of chipping away at the principal, that money would be eaten up by interest.
As such, the couple of hours around the kitchen table, Mr Koch suggests “going through the household bills could be some of the most profitable time (you’ll spend) all year.”
“Start with the mortgage, because that’s where the really big dollars can be. Know your rate. Know what else is out there. And don’t assume your bank is rewarding you for being loyal.
“If you’ve never rung your bank and asked for a better home loan rate, do it. You don’t have to refinance tomorrow. Just pick up the phone and say, ‘Is this the best rate you can give me?’
“You could be amazed at what can happen when you simply ask.”
Banks were quick to pass on interest rate pain
Australian lenders were quick to apply higher interest rates to variable mortgage holders in response to the cash rate hike.
By Wednesday, all four major banks had announced plans to pass on Tuesday’s “difficult” rate hike to customers.
In total more than 20 lenders have told their customers interest rates will be going up shortly.
Westpac was the first of the big four, announcing the full 25 basis point increase would be passed onto customers as of November 13.
“We know another interest rate increase may be difficult for many households, particularly those who have already adjusted their budget this year, “ Westpac chief executive, consumer, Carolyn McCann said.
Moments later that same day, National Australia Bank said they would also pass on the full 25 basis point hike.
Australia’s largest home lender Commonwealth Bank was the third of the major four banks to announce they were also increasing interest rates. ANZ being the last of the big four to signal a rate change.
All Commonwealth Bank home loan variable rate changes will be effective from November 13.
ANZ group executive, Pedro Rodeia said both savings and mortgage rates were going to rise.
“We encourage customers to engage with us early, whether they’re reviewing their finances, planning ahead or simply wanting to better understand their options.
“Home loan customers don’t need to wait until they’re facing a challenge to start the conversation.”
Time to say enough is enough
Canstar money expert Sally Tindall urged cash strapped households to tell the government and the Reserve Bank enough is enough.
In her latest blog post Ms Tindall said the Reserve Bank renters and borrowers were sick of being punching bags, while those with savings accounts cashed in.
“The one lever the RBA has is not fair, not equitable and it’s not working, yet the central bank hasn’t properly tested out an alternative to the cash rate hikes,” Ms Tindall said.
“Sure, they tried something back in the 1980s, but that was almost half a century ago.
“Write to the Treasurer. Write to the RBA governor. Because it’s time to tell them enough is enough.”
Ms Tindall said while the additional rate hike would push some households to breaking point it was not a time for panic.
“If that’s you, don’t panic. Banks typically give you two to three months before increasing your repayments, so today’s hike shouldn’t hit your bank account until 2027,” she said.
“But equally don’t do nothing.
“First up, ask your bank for a rate cut or shop around for a better deal.
“If you can’t get rate relief, you will have to call your bank and ask for hardship support.”
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