A senior Reserve Bank official has revealed that the proportion of distressed borrowers with negative cash flow has quadrupled as interest rates have soared.
Brad Jones, RBA assistant governor in charge of the financial system, revealed this insight in response to a question from Labor MP Dr Andrew Charlton.
‘What we have discovered is that before the outbreak of higher inflation and higher rates in response to that, there were only about three percent of borrowers (variable rate owner-occupier type borrowers) who were experiencing a flow negative cash flow each month.
“Our sense is that for lower-income borrowers, that number has gone from 3 percent to 12 percent in the last 18 months.”
A senior Reserve Bank official has revealed that the proportion of distressed borrowers with negative cash flow has quadrupled since Labor came to power in 2022.
Negative cash flow means that a borrower has no savings in the bank after making monthly mortgage payments and has to survive on a credit card.
In November, the Reserve Bank raised interest rates for the 13th time in 18 months to a 12-year high of 4.35 per cent.
But 12 of those increases have come since Prime Minister Anthony Albanese won the May 2022 election, after Russia’s invasion of Ukraine sent gasoline prices above $2 a liter.
The RBA’s increases have marked the most aggressive pace of monetary policy tightening since 1989.
A series of rate increases has seen monthly mortgage payments increase by 69 percent, as variable rates went from starting with a “two” to having a “six” in front.
Someone with a lower-than-average mortgage of $600,000 has gone from paying $2,300 a month to $3,900, an increase of $19,200 in annual mortgage servicing costs.
The Reserve Bank on Tuesday left interest rates unchanged after last year’s inflation fell to a two-year low of 4.1 percent, but Governor Michele Bullock warned repeatedly this week that another rate increase.
In November, the Reserve Bank raised interest rates for the 13th time in 18 months to an 18-month high of 4.35 per cent. But 12 of those increases had occurred since Prime Minister Anthony Albanese won the May 2022 election.
Brad Jones (pictured), RBA assistant governor in charge of the financial system, revealed this insight in response to a question from Labor MP Dr Andrew Charlton.
When asked about the effect on the poor, he admitted it was harder for low-income people.
“Higher inflation typically hits low-income people hardest because they spend more of their income on essential items,” he said Friday.
This was her first appearance before a parliamentary committee as the first woman to lead the RBA.
Of Australia’s ten income deciles, people in the middle would earn between $51,000 and $61,900, according to Australian Tax Office data for 2020-21.
They would be slightly below Australia’s median wage of $67,600, but above the minimum full-time wage of $45,906.