Australians need to be “careful” with their spending this Christmas or risk their mortgage payments, after the RBA announced its sixth rate hike in a row this week.
Not only does a Christmas budget blowout threaten those who already have a mortgage, but Australians who are looking to purchase a home next year will have to be careful about how much they spend.
“If you‘re thinking about splashing out this year, it isn’t the year to do it,” managing director of Finance Brokers Association of Australia (FBAA) Peter White said.
“The risk is that if someone goes for a loan and they‘ve been spending up big, they could potentially, depending on how far they go, spoil the opportunity to get a loan,” he said.
Mr White said the banks will be looking at potential customers’ discretionary or non-essential spending to determine whether they should give them a home loan, with the cost of the festive season also taken into account.
With the FBAA predicting the RBA will continue to lift rates by at least 50 more basis points, Mr White recommended those with mortgages will see much tighter budgets over the holidays.
“Peoples’ repayments will continue to go up and up and up into the new year,” he said.
“If you’ve already got a mortgage, you’ve got to make sure you can keep up with the repayments, so that might eat into your discretionary payments.”
Mr White warns some Aussies will not make it out of the rate hikes with their homes.
“There will be plenty of people lined up for financial hardship – that could be difficulties or even not being able to pay … there are going to be people who simply can no longer afford their mortgage.”
For those worried about whether they will be able to make their repayments, Mr White had one simple instruction: make sure you plan for further rises.
“What we’ve been recommending to our members is that people need to work out what their repayments look like at 5.5 per cent and then begin to put that rate away,” he said.
“You need to put it to one side and forget about it because the step off of a fixed rate from two or three years ago is a massive jump.”
For those who come up against serious financial difficulty over Christmas, Mr White says it’s better to get out early.
“Take control of the situation; put your house on the market and sell it because when the banks sell it, they will take whatever money they can get for it, keep all of it, and leave you with a bad credit rating.”