Australia’s next Reserve Bank chief Michele Bullock says interest rate rises don’t hurt most borrowers because those with a home loan are more likely to be rich

The incoming Governor of the Reserve Bank of Australia, Michele Bullock, suggested that most borrowers “can handle somewhat higher interest rates” because those who have a home loan are more likely to be wealthy.

The Reserve Bank of Australia on Tuesday left interest rates unchanged for the second straight month at an 11-year high of 4.1 percent, but revealed on Friday that more borrowers needed help buying food.

NAB still believes there will be more pain to come, predicting one more rate hike in November which would be the 13th from May 2022.

The most aggressive interest rate increases since 1989 have seen monthly variable mortgage payments increase by 64 percent in just 15 months.

In July of last year, the RBA embarked on its third consecutive hike, raising rates an additional 0.5 percentage point for the second month in a row.

Ms Bullock told a business lunch in Brisbane that month that three-quarters of household debt was held by the top 40 per cent of income earners, while the bottom 20 per cent owed less than five percent of the debt.

The woman who replaced Philip Lowe on September 18 argued that this meant that increases in interest rates were more likely to hit the wealthy who could afford the higher monthly payments.

“In addition, households with a high debt-to-income ratio that could be hit hardest by an increase in interest rates also tend to be high-income households,” he told the Australian Economic Society in Brisbane.

“Higher-income households are typically able to put more of their income into debt service because their other living expenses tend to be a smaller part of their income.

“This suggests that a large number of households are likely to be able to handle somewhat higher interest rates.”

While Ms Bullock only became RBA Lieutenant Governor in April 2022, she has attended every board meeting that voted to raise fees.

The Reserve Bank’s own statement on monetary policy, published on Friday, noted that those with a mortgage now need help from charities just to eat.

“People with jobs now also seek food assistance more frequently than in the recent past, and higher interest rates have contributed to an increase in demand for services from people with a mortgage,” he said.

The RBA also forecast that mortgage payments would “rise to an all-time high” of 9.8 percent of household disposable income by the end of 2023 and around 10.1 percent by the end of 2024.

The Reserve Bank of Australia left interest rates suspended on Tuesday for the second consecutive month at an 11-year high of 4.1 percent, but revealed on Friday that more borrowers need help buying food (pictured, the Food Bank charity in Sydney)

As lieutenant governor and lieutenant governor of the RBA, Ms. Bullock was paid $533,925 last year, but her promotion would double her pay to $1,037,709 if the Dr. Lowe’s package is the benchmark.

Your existing annual payment package is also equal to the average Australian mortgage of $600,000.

Someone paying off this type of loan would have seen their monthly payments increase by 64.3 percent, from $2,306 in May 2002 to $3,789 now, as the Commonwealth Bank’s variable rate increased from 2.29 percent to 6 .49 percent.

The big jump in mortgage rates has caused house prices to fall from their 2022 peaks, though the rate of decline is slowing.

The median house price in Australia in July 2023 was four per cent lower over the year at $728,458, CoreLogic data showed.

Ms Bullock noted that negative equity could be a problem, where a recent borrower who bought at the height of the boom in 2021 owed more than their home was worth, having a higher debt-to-income ratio.

“Recent borrowers are more vulnerable than previous cohorts,” he said.

‘Some households are more likely to face financial stress than others.

‘Heavily indebted households are especially vulnerable in the event of a loss of real income due to higher inflation, particularly if combined with higher interest rates and lower house prices.’

The Reserve Bank’s own statement on monetary policy, released on Friday, noted that mortgage payments were “projected to rise to an all-time high” of 9.8 percent of household disposable income by the end of 2023 and about 10.1 percent by the end of 2024 (pictured is auction at Paddington in Sydney)

Even before taking office, Treasurer Jim Chalmers has subtly expressed a difference of opinion with Ms Bullock on unemployment.

Dr. Chalmers suggested that the non-accelerating inflationary unemployment rate could be below 4.25 percent after Bullock said at a lunch in Newcastle in June 2023 that unemployment would need to rise to 4.5 percent, up from 3.5 current percent, so that inflation goes down.

Inflation eased to 6 percent in June, down from 7 percent in the March quarter, but still well above the Reserve Bank’s target of 2 to 3 percent.

New Reserve Bank forecasts released Friday suggested headline inflation would fall to 2.75 percent by December 2025.