Despite the Reserve Bank of Australia (RBA) hiking official interest rates by less than most other advanced nations, Australian mortgage rates continue to climb.
As illustrated by the following charts from Justin Fabo at Antipodean Macro, the weighted-average interest rate on outstanding home loans in Australia edged higher to 6.08% in March.
Average Australian mortgage rates are also higher than New Zealand, Norway, Canada, Sweden, The United States, and the United Kingdom:
Australian outstanding mortgage rates have also experienced the second higher rise since central banks began this round of monetary tightening, behind Norway:
This strong rise in outstanding mortgage rates is part of the reason why Australian households experienced the world’s biggest decline in household disposable income in 2023, falling by 6%:
According to an analysis released last month by RBA economist Benjamin Ung, approximately 250,000 fixed rate home loans will expire by the end of 2024.
Ung’s analysis shows that the shift to variable rates will cause the average mortgage rate to rise by 0.35 percentage points in 2024, regardless of whether official interest rates are raised again.
Ung also predicts that mortgage repayments will account for a new record high share of household disposable income in 2024:
“Total scheduled household mortgage payments (comprising both interest and scheduled principal payments) have increased to around 10% of household disposable income as of December 2023, exceeding the estimated previous historical peak in 2008”.
“These scheduled mortgage payments are expected to increase further to reach around 10.5% of household disposable income by end-2024 as more fixed-rate loans expire and reprice at higher interest rates”.
The above data shows why Australia has one of the tightest monetary policy settings in the world, despite the RBA lifting official interest rates by less than elsewhere.
Moreover, Australian monetary policy will continue to tighten this year without additional rate hikes from the RBA.
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