Interest rate shock just around the corner

The Reserve Bank of Australia has a massive trick up its sleeve. The potency of this gambit is still very much underappreciated. In its latest financial stability review, the RBA published a chart on the share of fixed-rate mortgages in Australia, New Zealand, Canada, the UK and the US.

“Based on current market pricing for the cash rate and assuming full pass-through to variable mortgage rates, Most of the fixed-rate loans taken out in 2020 and 2021 were struck at mortgage rates of between 1.75 and 2.25 per cent. As more than one in five Aussie home loans have their fixed rates switch to variable rate by the end of 2023, the interest rates paid by these borrowers will more than double to 5-6 per cent.

Spare cash is defined by the RBA as the income the borrower has left over after meeting mortgage repayments and “essential living expenses”. This presages a huge reduction in household spending if the RBA gets to a 3.6 per cent cash rate next year. Note that this is actually slightly below current market pricing, which anticipates a higher 3.85 per cent terminal cash rate by mid-2023.

The epicentre of what will become the biggest housing crash in modern Aussie history has shifted from Sydney to Brisbane, where prices are falling at an incredible 20.3 per cent annual rate .

Source: Loan Digest (loandigest.net)

As usual. The rant on behalf of property hoarders have started. And who can do better then Financial Review. They want to keep the property price inflated come rain or storm.

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