An aerial shot of a typical Australian suburban neighbourhood

Reserve Bank admits rapid rate hikes could force some to sell their homes

The Reserve Bank of Australia (RBA) has acknowledged that its rapid interest rate hikes could see some households with mortgages fall into default, forcing some to sell their homes or enter foreclosure.

It says that in recent months most indebted households have seen their free cash flow decline, and over the next couple of years a notable number of homeowners with variable rate loans could see their free cash flow turn negative.

The RBA says that if labor and housing market conditions deteriorate further than expected, a greater proportion of households are expected to be in arrears on their mortgages.

However, he says that at this stage he thinks the share of households at high risk of being in arrears will remain low in coming years, although the risks for some “vulnerable indebted households” increase as interest rates rise.

The news comes after RBA Governor Philip Lowe said this week that he plans to continue raising interest rates over the coming months, albeit at a slower pace.

This week, the RBA raised rates for the sixth consecutive month – in what was the fastest rate hike cycle since 1994 – in an attempt to stamp out high inflation from the Australian economy.

The country’s consumer price index (CPI) inflation measure is currently at 6.1%, which is the highest since the early 1990s.

Threat of seizure for some households

The RBA’s analysis of the pressures facing households with mortgages can be found in its latest Financial Stability Review (FSR), released Friday.

Published every six months, the review provides an overview of the health of Australia’s financial system. It examines whether financial systemic stresses have recently emerged from local or global economic events.

The previous edition of the FSR was published in April, before the RBA started raising interest rates in May.

#Reserve #Bank #admits #rapid #rate #hikes #force #sell #homes

Leave a Comment

Your email address will not be published. Required fields are marked *