Louisa Sanghera
Yesterday’s cash rate decision will decimate homebuyer and investor activity, which has already fallen off a cliff since May last year, according to one of the nation’s most awarded mortgage brokers. The Reserve Bank of Australia decided to increase the cash rate by 25 basis points to 4.35 per cent at its meeting this afternoon.
Zippy Financial Director and Principal Broker Louisa Sanghera said the decision did not make sense given the steadily decreasing inflation over the past nine months as well as the significant and prolonged fall in homebuyer and investor activity over the same period.
According to the ABS Lending Indicators for September, the number of new loans for owner occupiers have fallen 28 per cent since May last year, while the number of new investor loans have fallen 25 per cent over the same period.
“Many of the new or existing borrowers we speak with have absolutely no chance of refinancing, with a lot of them technically not servicing their current debt levels,” she said.
“Over the past two months in particular, borrowers are becoming more desperate with many homeowners turning to interest-only repayments as the only way they can continue to hold on to their homes. “Unfortunately, their current lenders don’t necessarily offer interest only to owner occupiers – and they can’t refinance – so they may need to sell or opt for a repayment pause to keep the roof over their heads.”
Ms Sanghera called on all levels of government to start showing some fiscal constraint rather than expecting everyday borrowers to shoulder the inflation burden.
“Fiscal restraint can help fight inflation rather than just increasing interest rates in a record short timeframe,” she said.
“The wealthy with no mortgages are currently not being affected by rates rises – apart from seeing their term deposits growth in value significantly – and they are the ones with high discretionary spending, whilst your mum and dads out there working hard are the ones who are suffering financially.”
Ms Sanghera said borrowers appeared to already be in survival mode and have cut back on expenses and essentials as much as possible. “Investors are also doing it very tough – especially those whose five-year interest-only mortgage terms might be expiring,” Ms Sanghera said. “Again, most can’t refinance nor can they afford principal and interest repayments, and many lenders no longer offer the option of rolling over in to another interest-only term, which leaves investors with very little option but to sell, which will put further pressure on the rental crisis.”
Ms Sanghera said the underwhelming volume of new homebuyer and investor loans would ultimately impact the rental market and push rents upwards. “If policymakers are serious about helping to alleviate the rental crisis, then they need to allow more lenders to offer rollover interest-only loans to existing investor borrowers so they can continue to provide rental housing to tenants around the nation,” she said. “Without it, more investment properties will be sold off at a time when new investor activity is also well below par.”
