Commonwealth Bank tells inquiry mortgage stress will rise in coming months

Persistent high inflation and its impact on interest rates continue to have a brutal effect on millions of Australian households, the Commonwealth Bank says.

Mortgage stress will continue to rise in the next six months, even if the cash rate remains unchanged, the Commonwealth Bank has warned.

The bank also predicted the unemployment rate would jump to four per cent as inflationary pressures continue to take hold, in an economics committee hearing as part of a review of the big four banks in Canberra on Thursday.

Appearing via video link as he recovers from a bout of Covid, chief executive Matt Comyn outlined how different cohorts of Australians were responding to the cost of living pressures brought about by high inflation and interest rate hikes.

He told the committee just over 60 per cent of the impact of the 12 rate rises since last May had flowed through the Australian economy so far, meaning the risk of mortgage stress would rise in the months ahead – even if there are no more interest rate rises.

The bank predicts the Reserve Bank will hike rates just once more this year.

The Commonwealth Bank is predicting one more rate rise this year. Picture NCA NewsWire / Emma Brasier.

“With each subsequent cash rate increase, that will put additional pressure (on households),” Mr Comyn said.

“I don’t say that as a criticism. I think it’s entirely appropriate … (given) the risks of persistently high inflation.”

He said while Australian households would continue to feel pressure to keep up with their mortgage repayments, the number of Australians who have been forced to default on their loans was still low.

By the end of the year, he said about 85 per cent of the impact will have made its way through the economy – which will mean even more pressure on households.

“So you’ll continue to see more pressure on households over the course of, let’s say the next six months, even if there is no further increase in the cash rate, just simply as more customers are coming off fixed rates, rents are continuing to increase, their energy prices continue to go up,” he said.

“So it’s going to become challenging and therefore consumption will slow down, the economy will slow.”

He said the majority of young people that bought their first home during the pandemic while the cash rate was at record lows have had to slash their spending in the past year to keep up with servicing their loan.

“A third have reduced (spending) by more than 30 per cent year on year,” he told the hearing.

“Many households are pulling back on discretionary spending, and dipping into accumulated savings.”

He said it wasn’t just mortgage holders who were feeling the stress, saying data suggested renters were bearing the brunt of monetary policy.

Analysis by the bank suggests renters aged between 25 and 29, facing sharp rental increases, had wound back their spending more than any other cohort.

He said young renters are also less likely to be saving than normal, because of high costs for essentials.

Meanwhile, another bank has announced a major rate hike.

Virgin Money’s selected owner occupied and investor fixed rates loans, applied from Friday onward for total new borrowings of $300,000 or more, will see 0.60 per cent increases.

While a fixed investment – interest only loan will see a 0.80 per cent increase.

The changes won’t impact existing fixed rate or variable rate loans.