CommBank executive Marcos Meneguzz said borrowers are seeking certainty in their household budgets. (Source: Getty)
Homeowners with big mortgages are looking for certainty as the cost of borrowing is expected to rise again this week. The Reserve Bank of Australia, according to many observers, has little choice but to once again hike interest rates on Tuesday amid rising prices and an ongoing fuel crisis.
The Iran war has pushed inflation to 4.6 per cent in the year to March. And the Treasurer has warned that headline figure will get worse before it gets better.
As the conflict shows no signs of being resolved, the Australian economy risks entering a period of stagflation, says MLC senior economist Bob Cunneen.
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“For those households with mortgages, their pain threshold was already being tested by rising interest rates in February and March,” he said.
“The extra ‘cost of living’ squeeze from both rising consumer prices and mortgage interest rates is likely to weigh heavily on Australian consumer spending over coming months.”
And that could be a recipe for a very unpalatable 2026.
“Australia’s economy is at risk of suffering stagflation this year with both inflation and unemployment heading higher,” he warned.
However the “ominous tide of damaging economic consequences” could be avoided if the Middle East conflict is quickly resolved and global supplies of key inputs can return.
But it seems many Aussie borrowers aren’t waiting around to find out. Commonwealth Bank says analysis relying on online search trends shows interest in fixed rate loans is up more than 250 per cent in March compared to the same time last year.
While variable home loans accounted for about 99 per cent of new lending in its most recent half, a CBA spokesperson told Yahoo Finance the bank has recently seen “more borrowers trying to understand fixed rate options and how they compare to variable loans”.
CommBank executive Marcos Meneguzz said borrowers are seeking certainty in their household budgets in the face of so much global uncertainty and the expectation of more rate rises this year.
“Often it’s not just about where rates are today, but how comfortable borrowers feel navigating what comes next,” he said.
“When there’s uncertainty around interest rates, people often take a step back and look at the structure of their home loan – not just the rate itself, but how it works for them day to day.
“In a higher cost-of-living environment, predictability and flexibility can become just as important as the headline number.”
Not the best time to fix as mortgage holders brace for $2,657 hit
Economist Shane Oliver from AMP says now probably isn’t the best time to be looking at fixing the interest rate on your mortgage.
“It’s not the best time as fixed rates have already gone up, but it can still afford some protection if a borrower can’t afford any further increase in variable rates,” he said.
He was among a poll of economists and industry experts carried by consumer comparison site Finder, prior to RBA meetings this week, which showed 27 of 36 experts predicted there will be more interest rate pain for households announced on Tuesday.
Aussie mortgage holders are expected to take another $2,657 hit this week as Australia’s economy faces a difficult position. (Source: Getty/Yahoo finance)
While some see a case for the RBA to hold, most believe the reserve bank is backed into a corner.
“There is a rising risk that inflation expectations are rising again impacting wage claims,” Oliver said.
“So the RBA is likely to hike again to improve its confidence that inflation will fall back to target on a reasonable timeframe.”
It would be the third increase in a row and take back all the previous cuts to the official cash rate which gave borrowers some brief reprieve.
According to Finder, Aussies with an average home loan of $736,259 will have to fork out $2,657 more per year on their mortgage if Michele Bullock announced another standard hike.
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