Real pain yet to come for honeymoon fixed costs

RBA governor Philip Lowe. Picture: Bloomberg

For all the talk of mortgage pain, the scariest aspect of the rapid climb in rates is that they haven’t even hit us yet.

Of the 3.3 million indebted homes, the Reserve Bank estimates that about one in four is still on honeymoon fixed rates of 2 per cent – the lowest in history.

That means about 800,000 households are yet to feel any of what has been the quickest rate rise cycle in modern history – from 0.1 per cent in April last year, to 3.35 per cent on Tuesday.

Almost 250,000 of these households will suddenly face increases of 40 per cent or more in their monthly repayments, the RBA reckons.

All this pain lies ahead.

As for the rest, bank economists say that due to administrative delays, only about half of the cash rate hikes have actually flowed through to higher repayments on variable mortgages.

Monetary policy always takes time to slowly weave its weight through an economy, but the past nine rate rises – with more to come – threaten to crash into the economy at an unprecedented pace this year.

RBA governor Philip Lowe knows all this. His dry statement that “there are a range of potential scenarios for the Australian economy” underplays just how extraordinarily uncertain the outlook is.

All that would seem to argue in favour of a halt to rate rises and a “wait-and-see” approach.

But Tuesday’s statement that accompanied the ninth rate hike in a row to 3.35 per cent shows Dr Lowe is clearly more worried about inflation than he was when his board last met in December.

The balance of the risks have clearly shifted – from tightening too much and triggering a recession this year, to not doing enough, letting inflation get truly out of hand, and having to crush the economy in 2024.

So instead of any reference to a pause in rate hikes, homeowners have been warned to brace for multiple further increases “in the months ahead”.

“The path to achieving a soft landing remains a narrow one,” Dr Lowe said.

What he didn’t say is that it was getting narrower with every passing month.