Mark Bouris warns families will be ‘forced to sell their homes’ within months as mortgage cliff erupts

Australia is facing a devastating financial disaster – and money guru Mark Bouris has warned things will get nightmarish within months.

I’m sorry to be the bearer of bad news, but the truth matters.

Although the Reserve Bank has held off on hiking interest rates for three of the last five months, there’s much more pain to come.

Before the end of the year, hundreds of thousands of households on cheap fixed-rate home loans will move to high variable rates.

This means that families right across the country will see the rate on their mortgage go from around 1.9 to 2.5 per cent to between 6 and 7 per cent.

To put that in monetary terms, the repayment on a $750,000 mortgage set at 2 per cent would balloon from $3180 a month to $4830 a month – an increase of more than 50 per cent overnight, assuming a new rate of 6 per cent.

The short point?

If you thought the pain was over because outgoing Reserve Bank governor Philip Lowe has softened his tone on interest rates, think again. Picture: NCA NewsWire/Martin Ollman

If you thought the pain was over because the Reserve Bank has softened its tone on their rate hiking agenda recently, think again.

The consequences of the interest rate hikes won’t be fully laid to bear until Christmas this year, as more and more home loans move from cheap fixed rates to high variable rates.

That means that even if the Reserve Bank doesn’t hike for the rest of the year, people will still be in trouble.

As a result, expect families to be forced to sell their homes, many to property investors and foreign buyers, and end up in the already-crowded rental market that is driving up inflation.

Otherwise, families will be forced to cut back their spending on everything from holidays to food to recreational activities and school fees – the list goes on. This will hurt the small businesses that rely on consumer spending to pay their bills, which are also rising.

It’s a vicious cycle, and there’s no clear way out.

The worst part?

Finance expert Mark Bouris is not convinced hiking interest rates is a silver bullet for killing inflation. Picture: Kym Smith

I am unsure whether these hikes will do anything to reduce inflation.

As I have been saying for a while now, I am not convinced hiking interest rates is a silver bullet for killing inflation.

Think about it.

Only one-third of Australians have mortgages. The rest are either renters or own their homes outright. And yet, it’s mortgagees who are the sacrificial lamb to slaughter at the altar of inflation, even though they aren’t the problem.

Just look at your bills.

Your power bill is up. How is hiking interest rates going to reduce power bills? That requires new baseload power infrastructure that takes years to build.

Your gas bill is up. How is hiking interest rates going to bring down gas prices? Bringing down gas prices requires more supply. At least there’s progress on this front with the opening up of the Beetaloo Basin in the Northern Territory. But again, that’s years off.

Some families will be forced to sell up. Picture: NCA Newswire/Gaye Gerard

And rents are up. How is hiking interest rates going to help this? If landlords who are mortgaged see their rates go up, they will hike rents to cover their higher costs.

My point? Interest rate hikes are actually increasing rents, which, of course, is feeding further into inflation.

Meanwhile, the government is bringing in hundreds of thousands of migrants every year, even though there’s currently a nationwide shortage of 750,000 houses, and its flagship Housing Future Fund will hardly scratch the surface.

Good, hardworking Australians are being punished for the failure of our politicians and bureaucrats to build the infrastructure that’s critical to keeping the prices of key goods down throughout the economy.

Unfortunately, the infrastructure gap is now so deep and embedded, it will take years to fill.

Inflation is here to stay.

Mark Bouris is the executive chairman of Yellow Brick Home Loans. For more information on getting the best home loan, refinancing and some of the industry’s leading experts tips, visit the Y Home Loans website.