VIDEO – Interest rate hikes on the way

29 Sep VIDEO – Interest rate hikes on the way

Transcript:
Mortgage applications were down almost one per cent in the June quarter, another sign the housing market is beginning to cool.   Credit reporting agency Equifax’s quarterly consumer credit demand index shows the number of mortgage applications in the three months to June across Australia were down 0.9 per cent from a year ago.   The agency pointed to the fact that this is the second consecutive quarter of declining mortgage applications, and it marks the start of a “downward trend” in all states.
The finding comes after CoreLogic said the number of homes up for auction across Sydney, Melbourne, Brisbane, Adelaide and Perth fell for four consecutive weeks. At the same time, house prices rose in each of those cities except for Perth, where they remained steady.
Equifax said consumer credit applications were up 10.3 per cent in the June quarter, spurred on by an 18.4 per cent increase in applications for personal loans.   This could indicate people are turning to credit to support their household and discretionary spending.  Not such a good sign.
Meanwhile – Home owners who have been wrestling with their mortgage repayments are about to find things can get a whole lot worse as the Reserve Bank and the financial regulator hand the big banks two more reasons to hike rates.  The worst hit will likely be those who waded into frothy capital-city housing markets at the tail end of the boom.
In its latest meeting the RBA warned that as many as eight official rate hikes are on the way as the cash rate heads for a new normal of 3.5 per cent, while the Australian Prudential Regulation Authority has raised bank equity targets by 150 basis points to 10.5 per cent.  This is happening in an environment where the gap between variable mortgage rates and the official RBA cash rate has doubled in 10 years and is the widest it has been since 1994.
Experts say this gap is likely to widen.  In April the RBA warned in its Financial Stability Review that about one third of Australians had built up little or no buffer to higher interest rates or are less than one month ahead on their repayments. Recent UBS research shows 85-90 per cent of mortgages are variable, so this could see millions feel serious debt stress.
Add to that several big-name economists calling the peak of capital-city house price growth and the latest NAB research showing a spike in activity from first-time buyers. Simply put, if wages growth doesn’t get its act together then bleak times lie ahead.