Reserve Bank of Australia (RBA) assistant governor (economic) Luci Ellis appeared before the House of Representatives standing committee on tax and revenue on Monday (15 November), for its ongoing inquiry into housing affordability.
Reflecting on the serviceability of mortgages, the economist told the parliamentary committee that she had observed the majority of borrowers paying off more of their home loans than required by their contracts, particularly during COVID.
“Now, people have been socking away money in offset accounts and redraw accounts during this period. And particularly where, you had lockdowns, some people were not spending as much as they ordinarily would,” Dr Ellis explained.
She had made the comments as economists have speculated a cash rate movement, from the current historic low of 0.1 per cent, is due sooner than the RBA’s previous forecast of 2024. Some have tipped an increase is on the cards as soon as November next year.
The Reserve Bank itself has acknowledged that inflation has picked up faster than it expected, which could eventually result in the cash rate rising in 2023.
Recent survey data from the Finance Brokers Association of Australia (FBAA) has found three-quarters of borrowers and renters believe that rising interest rates would place pressure on their financial position.
Around 56 per cent of the survey participants had said that if rates were to increase, they would need to consider refinancing their mortgages.
But Dr Ellis believes differently.
“One important context here is, if and when rates do eventually rise, a lot of people will not actually need to raise their actual repayment, because they’re already paying more than they need to, according to their loan contract,” she told the parliamentary committee.
Last week, the Reserve Bank released research around liquidity, tying a rise in household liquidity in recent decades to rocketing house prices.