The RBA says borrowers are ready for higher rates but the mortgage crackdown continues
Two back-to-back rate hikes should not affect most homeowners when it comes to paying the mortgage, the Bank said.
The RBA’s latest Financial Stability Review confirms that the financial position of many households is considered “strong”, with the majority of borrowers having enough cash to cover both mortgage payments and essential expenses.
While the bank said liquidity pressures have eased significantly since mid-2024, it warned pressures are “expected to increase” going forward.
The RBA said its forecasts showed Aussies should expect to have less income than before, with “some deterioration in cash flows over the next year or so”.
Households are trapped in interest rate uncertainty after another rate hike on Tuesday pushed prices to an eight-month high of 4.1%.
While a major 2025 reduction in the three rate cuts strengthened the financial conditions of many households, borrowers were left reeling from recent comments from the central bank suggesting there is little clarity on how far rates will rise this year.
Oil prices rose sharply during March. Photo: Getty
Market volatility stemming from escalating conflicts in Iran and the Middle East has caused oil prices to rise over the past two weeks.
The effects on Australia’s already high inflation are widespread, as energy shocks caused by the war raise fuel prices across Australia.
The bank acknowledged “increased cost pressures”, although it said it did not expect widespread financial pressures from higher inflation or interest rates.
Questioned by the media on Tuesday following the RBA’s second rate hike in six weeks, RBA governor Michele Bullock warned against trying to predict a pattern in bank decisions.
RBA governor Michele Bullock says the bank’s forecast is highly uncertain. Photo: Martin Ollman
“There is nothing we can do about the rate of inflation that will come in the next few weeks,” said Ms. Bullock.
“I wouldn’t say that this is front-loading or the first walk of many. What we can do and hope to do is reduce the demand very much.”
While many Aussies are struggling with budget pressures, the Financial Stability Review notes that significantly fewer mortgage holders are under pressure than two years ago.
“While the risk of a negative global shock has increased in recent weeks, the strong financial position of many borrowers means that the domestic and business sectors are unlikely to be a source of systemic instability,” it read.
“Most borrowers continue to have enough cash to cover mortgage payments and essential expenses.
“A 50 basis point increase in the value of the currency since the beginning of the year and a rise in oil and gas prices in recent weeks caused by increased conflicts in the Middle East are unlikely to have changed this picture.”
A little more than 1% of owner-occupiers with variable rate mortgages were in financial trouble at the end of last year, the review found, with inflation in 2025 adding to disposable income.
The share of borrowers who may be behind on their loan payments due to low savings was at 0.3%.
The RBA also found that fewer loans are being taken out to meet the financial crisis than in 2024, with figures returning to pre-pandemic levels.
The number of households drawing down on prepayment buffers is still higher than the rate seen during Covid, although below 2024 levels.
Aussies made the most of last year’s rate cut to push back on mortgage repayments, as the RBA found that scheduled repayments fell through 2025.
“At the same time, households with mortgages continued to make additional payments to offset and redraw accounts, adding to their savings buffers,” it noted.
Although the bank said the experience “varies widely across different types of households”, it said many borrowers have large buffers to help withstand shocks.
When we get to winter and with price increases just around the corner, these reserves may be needed.
All four major Australian banks expect rate hikes when the bank meets again on May 5.
“Excess demand needs to come down so that inflation can return to target and protect against secondary effects from inflation,” Australia’s chief economist Belinda Allen said.
“We have maintained our request for a price increase in May considering the current economic situation and the need to close the production gap.”
This article originally appeared on Mortgage Choice and has been republished with permission.
