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According to the Financial Consciousness Index, undertaken by Deloitte Access Economics for Comparethemarket.com.au, 41 per cent of Australians with a mortgage do not check cash rate changes.
Respondents cited a lack of understanding on what the RBA cash rate is and/or its relevance, or disinterest in rate movements as the major factors inhibiting them from monitoring the cash rate.
This builds on the findings that 68 per cent of Australians with mortgages indicated they have not “stress tested” their home loan.
According to the report, a 0.5 per cent rise in interest rates would cause mortgage stress to increase from one in four borrowers to one in three.
“This starts to get to the heart of a deeper issue – especially when you consider how snags in financial capability can result in significant public policy dilemmas and ultimately lead to broader economic issues. Issues [of which] Australia may find that it faces in the coming decades,” the report read.
It attributed the RBA’s current long-term hold on low interest rates a potential stimulus for the widespread indifference towards the cash rate. As of November, the RBA has held the cash rate at its record low level of 1.5 per cent for 27 consecutive months.
“[I]n the current low interest rate environment, people could probably be forgiven for somewhat underestimating the importance of the cash rate,” the report stated.
Despite the cash rate being kept on hold, the regulatory and economic environment has already triggered changes in mortgages rates.
Indeed, the CEO of Mortgage Choice, Susan Mitchell, recently warned that the US Federal Reserve’s recent decision to lift its interest rate benchmark, coupled with the heightened scrutiny of Australia’s financial services sector, could prompt further rises in mortgage rates.
Ms Mitchell commented last month: “The Fed’s decision to continue to raise rates could have implications on the Australian economy, such as export and trade, the value of the Australian dollar and — perhaps the most notable from a housing perspective — an increase in wholesale funding costs.
“Rising wholesale funding costs have already resulted in Australian lenders raising the interest rates charged on their variable home loan products in recent months, and with the market predicting another rate rise from the Fed in December, Australian interest rates could rise further.”
The brokerage CEO also made note of the potential impact of regulatory scrutiny from the financial services royal commission on market conditions.
The Mortgage Choice CEO concluded: “This, coupled with an increasingly complex loan application process, means it has never been more important for prospective buyers and borrowers alike to ensure they are in a financially healthy position and highlights the need for expert advice when applying for a home loan.”
[Related: Rate pressures mounting despite cash rate stability]
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