‘Rein in my choices’: Rate rises squeeze Melbourne homeowners

Chelsea Brown gained a new appreciation for the old idiom “every dollar counts” when the Reserve Bank started raising interest rates in May last year. Even an errant light left on in an empty room is enough to draw her attention.

“I’m just a little bit more conscious, even with electricity,” she said. “The kids don’t listen, I tell them to turn the bathroom light off but they never [do].”

Archer, Chelsea and Myles Brown have had to cut down on discretionary spending as their cost of living rises. Credit: Scott McNaughton

Brown’s mortgage repayments have already increased $700 per month, even before the Reserve Bank’s latest rate increase of 0.25 per cent on Tuesday to 3.35 per cent. The RBA has raised rates from a record low of 0.1 per cent, starting in May 2022 – a record nine consecutive increases.

The extra costs are now affecting households beyond recent first home buyers who took on large debts at rock-bottom rates, and RBA governor Philip Lowe acknowledged the “painful squeeze” on households due to higher interest rates and the rising cost of living.

ANZ senior economist Felicity Emmett said the increasing cost of holding a mortgage was weighing on households already struggling with other cost-of-living increases.

“They’ve had their expenses crunched at the moment and that will add to the pressure they feel over 2023,” she said.

“Wage growth is picking up, but apart from higher mortgage repayments, people are paying more at the supermarket and at the petrol pump and for utilities.”

With each increase in Brown’s interest costs, she makes more difficult decisions about where to spend her dwindling discretionary funds – for her and her two sons, that means going without enjoying the fun things their area has to offer.

“We live in Yarraville, we used to go out to restaurants and local cafes,” she said. “I’ve tended to not do that as much.”

Brown follows the news about rate rises to keep ahead of the rate increase notices from her lender. Even then, the rate at which they rose surprised her.

Brown says she has tried to be prepared for rate rises, but the speed of the recent hikes took her by surprise. Credit: Scott McNaughton

“I could predict that there could be the potential [for rises],” she said. “I didn’t even think about it at the time, even as I got my statements with an increase in repayments.

“It did make a significant dent. I don’t have a huge mortgage, but on a single income it makes a difference.

“I’m fortunate I have a big corporate job. I just still have to rein in my choices.”

Emmett said a reduction in discretionary spending was an intended byproduct of rate rises, which had a goal of reducing inflation.

“Through 2023 I think we will see consumer spending really start to slow … which is what the RBA wants to see,” she said.

Brown’s mortgage broker, Wheatley Finance director Andrew Wheatley, said much of his business now was helping clients restructure their debts to get cash bonuses offered by banks for joining as a new customer or transitioning to a loan product with an offset account to reduce the amount of interest paid.

He said taking these actions is more helpful than banking on getting a significantly cheaper rate – something that may not be possible in the present lending environment.

“That improves your situation right now, today,” he said. “A bird in the hand is worth two in the bush.

Credit: Matt Golding

“Trying to guess what will happen with rate rises, trying to negotiate with your bank. These things may or may not work.”

Emmett believed more rate rises would be on the way, as flagged by the Reserve Bank in its statement, but it would depend on how much inflation the Australian economy recorded this year.

“I do think we will get further increases in the cash rate,” she said. “We think they will increase rates in the next month once they get wage data and then we’re thinking one more rate rise in May.

“Inflation was stronger than the RBA expected and than we expected. Inflation has been a bit stronger and may require the RBA to increase rates above 4 per cent, that is the risk.”

While Brown felt she was just tinkering around the edges of her debt obligations, she still believed restructuring was of some relief.

“I’ve just refinanced at pretty much the same rate,” she said. “[My broker and I] just reassessed my situation. There wasn’t a lot of difference but it just made sense to move banks.”

Brown was hopeful rates would come down soon, but was prepared to take a short-term hit on her lifestyle to service her mortgage.

“I hope it will come back down towards the end of the year,” she said. “It’s like everything else, there are peaks and troughs.

“House prices go up eventually, you just have to ride the wave.”