1 in 2 mortgage holders struggle to pay as cash rate holds

2 April 2019, Sydney, Australia - Almost 5 million Australian mortgage holders live in housing they can only afford to pay for month to month, according to Finder, Australia's most visited comparison site.

Dropping prices, with further drops expected, may be good news for newcomers to the property market, but nearly half (48%) who currently have a mortgage are struggling.

A recent Finder survey of mortgage holders found that 40% are living month to month, 7% are barely able to make payments and 2% are behind in repayments.

Graham Cooke, insights manager at Finder, said financial hardship is a pervasive problem in Australia.

"Living month to month is a reality for millions of Australians, so if you're in this situation, you are not alone.

Source: February 2019 Finder consumer survey of 828 homeowners

"A good first step to easing mortgage stress is to see if you can get a better deal.

"Switching to a rate that is half a percentage point lower, like from 4% to 3.5%, could save the average Aussie more than $1,300 a year on their mortgage.

"Savings of any kind will be especially important if we are struck with the larger economic downturn that some are predicting," Cooke said.

In the latest Finder RBA Cash Rate Survey™, 24% of experts and economists (6/25) said a recession in Australia in the next 12 months was somewhat likely.

"Nearly a quarter of our experts think we might be in for a recession so it's best to hope for the best and prepare for the worst.

"Do an audit of your finances and see if there are places where you can tighten your belt for the better," Cooke said.

Despite easing prices in the housing market and recession concerns, the Reserve Bank of Australia (RBA) today announced to hold the cash rate for the 29th consecutive time, an outcome which was accurately predicted by 97% (35/36) of the Finder RBA panel.

Matthew Peter, chief economist at Queensland Investment Corporation, predicted the RBA would hold but said market pressure is building for a cut.

"If the RBA can withstand market pressure for a further six months, many of the current headwinds generating recession fears – trade wars, euro growth, Brexit, Australian housing market downturn – are likely to have receded and the RBA can avoid cutting rates.

"This is important as the RBA risks being trapped, along with the Fed, ECB, BOJ, in a low cash rate setting that limits the effectiveness of monetary policy," Peter said.

While nearly all experts in the panel expected the hold today, three-quarters (76%) predict that when the RBA does move rates, it will be a decrease.

Cooke said more than half (15/29) of those who made a prediction on the timing of the next move expect it to happen before the end of August.

"The sentiment we're seeing is that the RBA will likely decrease the cash rate, but not until there's more economic pressure and clearer direction regarding federal policy," Cooke said.

While the panel is leaning towards forecasting a decrease in the cash rate, the majority (80%) don't see this rate falling below 1.00%. Only four economists and experts are predicting it to eventually fall below 1.00%.

Here's what our experts had to say:

Mark Brimble, Griffith University, Hold: "Bias remains to decrease, however it is likely the RBA will hold this month."

Katrina Ell, Moody's Analytics, Hold: "There's no need to tap the easing just yet."

Matthew Peter, QIC, Hold: "The RBA will remain on the sidelines once again at their April meeting, but market pressure is building for a cut. If the RBA can withstand market pressure for a further 6 months, many of the current headwinds generating recession fears – trade wars, euro growth, Brexit, Australian housing market downturn – are likely to have receded and the RBA can avoid cutting rates. This is important as the RBA risks being trapped, along with the Fed, ECB, BOJ, in a low cash rate setting that limits the effectiveness of monetary policy."

Mark Crosby, Monash University, Hold: "Indications from the RBA are to hold for longer, labour market surprised on the strong side."

Alex Joiner, IFM Investors, Hold: "The RBA is cognizant of the recent weakening in the hard and higher frequency data flow, however there has not been enough weakness to serve as a catalyst for it to ease monetary policy in the short term. Importantly, labour market performance is so far holding up very well as while this is the case the RBA can see a path to better wages growth and higher rates of inflation."

David Bassanese, BetaShares Capital, Hold: "Unemployment is still low."

Stephen Koukoulas, Market Economics, Decrease: "The economy has slowed, with the per capita GDP recession in the second half of last year probably continuing into 2019. Inflation is low and with the household sector under pressure from falling house prices, some policy stimulus is needed."

Dr Andrew Wilson, My Housing Market, Hold: "Although momentum and expectations for a near-term rate cut has intensified, the latest labour market data would have bolstered the RBA clear resolve to leave rates on hold at least for April given the Bank's continued reference to employment data as the key measure for rate consideration."

Trent Wiltshire, Domain, Hold: "The RBA has shifted to a more dovish stance but are not willing to cut until they see a weaker labour market."

Jacqueline Dearle, Mortgage Choice, Hold: "Borrowers hoping for a rate cut on April 2nd will be disappointed, with the Reserve Bank of Australia unlikely to shift the official cash rate that's been anchored at 1.5% since 2016. Despite unemployment remaining low, wages remain low and there has been subdued growth in the Australian economy. In addition, we are now experiencing a "per-capita" recession for the first time in 13 years which may prolong soft household spending. These economic factors, plus a decline in dwelling investment driven by the tightened lending environment will also be weighing on RBA decision making."

David Robertson, Bendigo and Adelaide Bank, Hold: "Not enough evidence yet of the need to add monetary policy stimulus, however pressure for RBA rate cuts may increase in the H2 as the global economy slows."

Sean Langcake, BIS Oxford Economics, Hold: "Monetary policy remains very accommodative. Domestically, there has been very little new data in the last month, and none would cause the Bank to change its course."

Tim Nelson, Griffith University, Hold: "No material change in conditions since last meeting."

Malcolm Wood, Bank of America Merrill Lynch, Hold: "Growth indicators moderating and inflation below target band."

John Caelli, ME Bank, Hold: "The Reserve Bank is likely to hold rates for the near future. Despite slowing growth, a recent fall in unemployment numbers provides the RBA more time to assess the data before deciding if a rate cut is necessary."

Leanne Pilkington, Laing+Simmons, Hold: "There's still no trigger significant enough to warrant an adjustment to the cash rate at this time. Labor's proposed changes to negative gearing and CGT have the potential to impact the market considerably so we see the RBA leaving rates steady at least until the Federal election result is decided."

Brian Parker, Sunsuper, Hold: "RBA will probably wait for more labour market data before deciding whether to ease or not."

Nerida Conisbee, REA Group, Hold: "While the likelihood of a cut is increasing, this month is still too early. If economic data continues to deteriorate, then we will likely see movement in the second half of the year."

Michael Witts, ING, Hold: "Ahead of the Budget there is no need for the RBA to take action. In addition the labour market remains strong."

Janu Chan, St. George Bank, Hold: "The growth outlook is looking increasingly weaker than what the RBA had forecast. However, the labour market is a key focus for the RBA. While it continues to show strength, the RBA would seem reluctant to lower rates."

Tim Reardon, Housing Industry Association, Hold: "Unemployment – which the RBA has made clear is crucial to their decision-making – remains low."

Jonathan Chancellor, Property Observer, Hold: "The RBA won't be rushed into their next move."

Nicholas Gruen, Lateral Economics, Hold: "Because the economy has stalled, they really should cut, but they are flying by the seat of their pants so can't really decide what to do."

Shane Oliver, AMP Capital, Hold: "While the threat to growth and inflation from the housing downturn (via reduced construction activity and negative wealth effects) is such that the RBA should (and might) cut interest rates on Tuesday in order to get in before unemployment starts rising the most likely scenario is that they will continue to hold. The RBA probably needs to see more evidence that the slowdown seen in the second half last year is not just temporary, that consumer spending is under serious threat and that this will drive higher unemployment and lower for longer inflation. It will probably also want to see what sort of fiscal stimulus comes out of the budget and the Federal election outcome. So rate cuts are probably still several months off."

Noel Whittaker, QUT, Hold: "Because lowering rates would not solve anything."

Mathew Tiller, LJ Hooker, Hold: "Despite a slight softening, the economy is in relatively good shape, as evidenced by falling unemployment rates, this will see the RBA hold the cash rate steady this month."

Michael Yardney, Metropole Property Strategists, Hold: "While a drop in interest rates would help increase consumer confidence at a time when falling house prices is affecting confidence and spending, the Reserve Bank will be pleased that Australia's unemployment rate has hit an eight-year low, giving it more breathing room and the ability to hold off on cutting interest rates."

Alison Booth, ANU, Hold: "Economic fundamentals don't justify a change."

Alan Oster, NAB, Hold: "Still looking to sort out the different signals from the labour market and activity (e.g. GDP and NAB Survey)."

Peter Haller, Heritage Bank, Hold: "Employment growth is sufficient to offset fears the RBA may have related to falling property prices "

John Hewson, ANU, Hold: "Still waiting for more data on weakening economy against latest unemployment number."

Debra Landgrebe, Gateway Bank, Hold: "They have indicated a neutral bias, and we need to see further deterioration or slowing of growth to see them shift to an easing bias."

Andrew Reeve-Parker, NW Advice Pty Limited, Hold: "Economic data doesn't require immediate adjustment of rates."

Other participants: Bill Evans, Westpac; Ben Udy, Capital Economics.