A senior Reserve Bank official has revealed the proportion of struggling borrowers with negative cash flow has quadrupled as interest rates have soared.
Brad Jones, the RBA’s assistant governor in charge of the financial system, revealed this insight in response to a question from Labour’s Dr Andrew Charlton.
‘What we found is that before the outbreak of higher inflation and higher rates in response, there were only about three per cent of borrowers – variable rate owner-occupiers – who were experiencing negative cash flow each month.
“Our sense is that for the lowest income borrowers, that number has dropped from 3 to 12 percent over the past 18 months.”
A senior Reserve Bank official has revealed the proportion of struggling borrowers with negative cash flow has quadrupled since Labor came to power in 2022.
Negative cash flow means a borrower has no savings in the bank after meeting their monthly mortgage repayments and must 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 percent.
But 12 of those increases have occurred since Prime Minister Anthony Albanese won election in May 2022, after Russia’s invasion of Ukraine pushed gasoline prices above $2 a gallon.
The RBA’s increases marked the most aggressive pace of monetary policy tightening since 1989.
A flurry of rate hikes saw monthly mortgage repayments rise by 69 per cent as variable rates went from starting with a ‘two’ to a ‘six’ up front.
Someone with a below-average $600,000 mortgage went from $2,300 a month to $3,900 — a $19,200 increase in annual mortgage servicing costs.
The Reserve Bank kept interest rates on hold on Tuesday after inflation fell to a two-year low of 4.1 percent last year, but Governor Michele Bullock repeatedly warned this week that another rate hike was still possible.
The Reserve Bank raised interest rates for the 13th time in 18 months in November to an 18-month high of 4.35 per cent. But 12 of these increases have occurred since Prime Minister Anthony Albanese won the election in May 2022
Brad Jones (pictured), the RBA’s assistant governor in charge of the financial system, revealed this insight in response to a question from Labor backbencher Dr Andrew Charlton, who previously advised former Labor Prime Minister Kevin Rudd.
Asked about the effect on the poor, she admitted it was harder for people with lower incomes.
“Higher inflation usually hits people with lower incomes harder because they spend more of their income on essentials,” she said on Friday.
It was her first appearance before a parliamentary committee as the first woman to lead the RBA.
Of Australia’s ten income drops, individuals in the middle would earn $51,000 to $61,900, based on Australian Taxation Office data for 2020-21.
They would be slightly below Australia’s median salary of $67,600, but above the full-time minimum wage of $45,906.