Families struggling as interest rates rise
Interest rates are set to rise further when the Reserve Bank of Australia meets next week, with many eager to see how badly it will hit their pockets.
Nicola Alexander and her husband Bryan are among those waiting to see what happens.
The Perth couple work alternate weekends to pay their bills and feed their three children, aged 8 to 14.
“I work Saturdays and he works Sundays…we sacrifice quality time with family to manage,” she told NCA NewsWire.
Until recently, the family had a home loan with Keystart, with its lowest interest rate of 4.36%.
Keystart is the Western Australian government’s loan provider that offers low deposit home loans to those who cannot meet the deposit requirements of traditional lenders.
“We had an equity loan where Keystart owned 20% of our property, so realistically our loan repayments were based on 80%,” Ms Alexander said.
Although they knew their interest rates were higher than other lenders, the family never had trouble paying back, but when rates started to climb this year, they realized they had to. reassess their situation.
“With the help of a broker — and a few interest rate hikes later — we consolidated all of our debt,” she said.
“We now own 100% and are about $900 a month better overall.”
Ms Alexander said inflation and the cost of living were rising, but their incomes effectively remained the same, so the family were worried about their finances.
“Our budget hasn’t changed for things like groceries because we’re just buying less overall,” she said.
“Insurance, rates and utilities have increased dramatically, and most months we have to ask for payment extensions.
“Overall, I think we’re pretty lucky. We have always budgeted well from an early age and live within our means.
“But if the cost of living continues to rise at the same rate, we may have some big adjustments to make.”
CBM Mortgages director Craig McDonald told NCA NewsWire that many economists expect the cash rate to rise to 3.50% from its current rate of 1.85% over the next six months.
“We’ve obviously had some 0.5% increases in the last two months and I think it will increase again by 0.5% in September, with a drop of 0.25% in the last months before 2023”, did he declare.
Meanwhile, some people who had committed to low two-year fixed terms are now beginning to forgo those deals.
“They will go from a rate below 2%, sometimes as low as 1.69%, to now go back to a variable rate that can range from 3.79% to more than 5%,” McDonald said.
“It is important that customers contact their broker or bank before their fixed rate expires to ensure they are not on the bank’s standard floating rate offer and that a discount has been negotiated. from the bank’s base rate, as this discount difference can be more than two percent in some cases.
“It also gives you the ability to see what’s on offer from other lenders and it can help you negotiate with your bank on their interest rate offer.”
Mr McDonald said most customers opt for variable rate loans because the spread between the fixed rates offered and the variable rate is quite large.
A Westpac spokesperson told NCA NewsWire that the bank has yet to see an increase in the number of customers asking for hardship assistance.
“But we are monitoring the situation carefully and expanding our teams to better support customers,” they said.
“Our clients have saved well during the pandemic, and many have built up a financial reserve to help mitigate the impact of rising interest rates.
“The majority have built up equity in their homes due to rising house prices and loan repayments, two-thirds are ahead of their mortgages and we have seen an increase in savings on deposit and mortgage clearing accounts.
“At the same time, the labor market is strong and unemployment remains low, allowing clients to continue to receive a regular source of income.”
Westpac is also reaching out to customers who have low fixed rates to discuss their options.
“For those who need additional support, our hardship team is ready to help with a range of bespoke support options,” the spokesperson said.
“The most important thing clients can do is call us as soon as possible so we can work with them one-on-one.
“Sometimes customers feel embarrassed to call their bank, but the sooner we know there’s a problem, the sooner we can find a solution to get them back on track.”
According to the annual financial results of the Commonwealth Bank of Australia, at the end of June this year, 0.49% of home loans were in arrears, compared to 0.64% the previous year.
An ABC spokesperson told NCA NewsWire that the bank also helps people who have low fixed rates.
“We notify customers 42 days before their fixed rate expires to let them know what their options are, including repricing their loan, splitting their home loan so it is part fixed and part variable , or switching to a variable rate mortgage,” they said.
“We provide our clients with a range of information materials, including advice on how best to manage their home loan in today’s interest rate environment and tools such as our loan repayment calculator immovable.
“If customers have any concerns, we encourage them to contact us as soon as possible to see how we can best help them.”