Australians have “buffer” against possible rate hikes

Although the government has kept interest rates steady over the past 13 months, Treasurer Scott Morrison said on Wednesday that rates are “obviously more likely” to increase in the future.

With household debt reaching record highs this year, any rate hike could make it more difficult for homeowners to pay their loans. In an interview on Sky News, the senior official assuaged these concerns and pointed out that Australians have been creating mortgage buffers in anticipation of possible rate hikes.   

“Australians have taken the opportunity, in the main, to try and get ahead of their mortgages and that’s a good thing. So, they’ve built a bit of a buffer for that type of event taking place (and at some point, obviously, that’s going to happen), but Australians have been pretty prudent.”

The Reserve Bank of Australia maintained interest rates on Tuesday, as data have been consistent with the bank’s expectation that growth in the Australian economy will gradually pick up over the coming year, said Governor Philip Lowe.

Housing prices have been rising briskly in some markets, although there are signs that conditions are easing, especially in Sydney,” Lowe added. “Residential construction activity remains at a high level, but little further growth is expected.”

At a Reserve Bank of Australia board dinner, Lowe noted that household borrowing has increased at an average rate of 6.5% over the past four years, while household income has only gained an average 3.5%, prompting the RBA and regulator action to ensure lending practices remains sound. He said that some loans had been extended to borrowers who “had only the slimmest of spare income,” requiring regulators to tighten lending criteria.

With reports from Bloomberg