Rising interest rates have led to financial strain for a subset of Australian mortgage borrowers, with about 5% facing a cash flow shortfall, according to Reserve Bank of Australia (RBA) Governor Michele Bullock. While higher rates have been deemed essential to curbing inflation, they have also put pressure on households with variable-rate loans.
Governor Bullock acknowledged that higher interest rates are a necessary evil in the battle against inflation. “Inflation causes hardship, particularly for the more vulnerable in our community,” she said. However, she also admitted that these higher rates have left some mortgage holders in a vulnerable position, with many “feeling the squeeze” as the cost of borrowing continues to rise.
For a small but significant group of borrowers, their situation is particularly challenging. Bullock revealed that approximately 5% of owner-occupiers with variable-rate loans are in a precarious position, where their essential spending combined with mortgage repayments exceeds their income, leaving them with a cash flow shortfall.
“Although this group is fairly small overall, those in it have had to make quite painful adjustments to avoid falling behind on their mortgage repayments,” Governor Bullock said. These adjustments include cutting back on non-essential spending, opting for lower-quality goods and services, dipping into savings, or working extra hours.
The financial stress affecting these borrowers highlights the impact of the RBA’s monetary policy on household budgets. While the goal of reducing inflation remains a priority, the road ahead may continue to be difficult for some mortgage holders.
