Posted: 2023-02-17 03:34:16

Reserve Bank governor Philip Lowe has given a strong indication more interest rate rises are on the cards despite nine back-to-back rises causing many households significant pain and leaving them struggling to make repayments on their mortgages.

"There is a risk that we've gone too far and don't need to do anymore, that the economy will slow more than we expect," Dr Lowe told a parliamentary hearing on Friday.

"But there's also a risk that we haven't done enough, that inflation proves more persistent and doesn't come down. And our job is to try and balance those."

The Reserve Bank has been under political scrutiny for during the pandemic indicating that interest rates would not likely rise until 2024, but since lifting the official cash rate at nine consecutive meetings, taking it from 0.1 per cent in April to 3.35 per cent this month as it tries to bring inflation under control. 

That leaves many borrowers facing variable interest rates above 6 per cent and heading above 7 per cent, and is set to put households that are locked in fixed rates of 1.5 to 2 per cent in an especially dire situation as they roll off them in the coming months.

It also comes as some of the major banks report a slight uptick in mortgage delinquencies, saying many borrowers are now hitting the limit of lending buffers imposed on banks.

That means, going forward, many Australians may not be able to get a mortgage or will struggle to refinance because, based on their income, the bank will assess that they will be unable to service the loan if interest rates rise further.

Dr Lowe said the central bank board did "recognise that the full effect of the higher interest rates is yet to be felt".

He said nine back-to-back rate rises since May last year had created "a very disparate story" and meant "many households are under very real pressure".

"You're under pressure from rising interest rates and from falling housing prices, so it's a really challenging environment for many people at the moment," Dr Lowe said.

Philip Lowe sitting at a desk behind a microphone mid-sentence, gesturing with his right hand and looking at the camera
Philip Lowe says more interest-rate rises are on the cards.(ABC News: Nicholas Haggarty)

The RBA's assistant governor financial system, Bradley Jones, indicated a number of borrowers with variable rates were already under mortgage stress and lacked spare cashflow.

He said: "The picture is extremely uneven."

"On one hand, you've got around half our variable rate and occupiers who are more than one year ahead on their mortgage payments, in fact, about a third and more than two years ahead," he said.

"At the other end of the distribution, we see observe around 10 per cent of variable-rate unoccupied borrowers who have got virtually no spare cash flow, after they meet their mortgage payments and their living costs, and also have very low buffers."

"And a reasonable share of those households are low-income households and hence have a limited ability to cut back on consumption.

"There's no question that there's a segment of the community that are hurting now. And that's very likely to continue."

More households expected to fall into 'negative equity'

Dr Jones responded to questions about whether the central bank was worried borrowers could fall into negative equity — when the value of property falls below the outstanding balance on the mortgage used to purchase it.

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