Finance guru Mark Bouris has slammed the Reserve Bank’s latest interest rate rise, saying it “could be the nail in the coffin” and predicting there could soon be “desperate” borrowers selling their homes.
“Well I can’t believe it — I cannot believe the RBA has decided to put the rates up again,” the executive chairman of lender Yellow Brick Road said in an Instagram video shortly after Tuesday’s announcement.
At its June meeting, the RBA delivered its 12th rate hike since May last year, raising the official cash rate by another 25 basis points to 4.1 per cent — continuing the central bank’s fastest tightening cycle on record in an effort to tame persistently high inflation of nearly 7 per cent.
It means Australian borrowers now face the heaviest mortgage repayment burden in history, with financial comparison website Finder estimating that the rate hike will set Aussies back by an additional $1200 every month.
Aussies with an average loan size of $577,000 will be spending more than $15,000 extra per year on their mortgage compared to what they were in April last year.
“I mean this could be the nail in the coffin, this could be the interest rate rise we that didn’t need to have,” said Mr Bouris.
“History just keeps repeating itself, it’s more than likely that this particular interest rate [rise] will just take the wind out of the sails of every borrower in this country, every small business owner in this country, it’s going to make it seem too hard, people are going to stop investing. We might start seeing desperate people selling houses at whatever prices they can get — hopefully it’s not the banks selling it for them.”
Last month, Mr Bouris predicted the RBA would raise rates again, and warned he didn’t think the “economy can withstand” interest rates much higher that 4.1 per cent.
He predicted a wave of mortgage defaults if rates went as high as 4.8 per cent, as some have predicted, and said he was already hearing early rumblings of distressed sales.
“I was talking to a well known auctioneer in Sydney yesterday and he said to me that whilst we’re not seeing mortgagee sales, he’s actually noting that, I don’t know what they are called, but there’s some person sitting between the borrower and the lender who is coming out and encouraging the borrower to put their property on the market,” he told Sky News in May.
“Not as a mortgagee sale because as soon as you put it on as a mortgagee sale you get nailed … but they’re trying to get an orderly price. That’s a bad indicator — I don’t like the sound of that.”
The former Celebrity Apprentice host, who founded Wizard Home Loans in 1996 and later sold the non-bank lender to GE Money in 2004 for $500 million, has been a vocal critic of the RBA’s strategy to tackle inflation.
“I don’t agree with the RBA’s position,” he said on Tuesday.
“I think the RBA should have waited to see what rolls out as a result of all their interest rate increases. If you go back and look at the last three months’ average rolling inflation number for each month, and then extrapolate that forward for the next nine months, you’ll see that inflation is not 6.8 per cent but it’s a much lower number, somewhere lower than 4 per cent. Which means the interest rate environment is having the effect the RBA wanted and therefore they didn’t need to do this.”
He concluded, “Anyway, I’m filthy — but it is what it is.”
In his statement on Tuesday, RBA governor Philip Lowe warned further rate rises were on the cards.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable time frame, but that will depend upon how the economy and inflation evolve,” he said.
At a media conference after the decision, Treasurer Jim Chalmers said a lot of Australians would “find this decision difficult to understand and difficult to cop” but added he did not want to “second guess” the RBA.
“The job that the independent Reserve Bank has is to try and get on top of this inflation challenge in our economy without crashing our economy, and we’ve known for some time that is a difficult path to tread,” he said.
Speaking to Nine’s Today on Wednesday morning, Mr Bouris said Australia was “definitely going to head towards a recession”, predicting unemployment would increase from 3.7 per cent to “something like 4.5 [per cent] or maybe more”.
“Small businesses are going to suffer because most of the owners have rates or a property and their rents are going up,” he said.
“Most of them are starting to feel the effect of what the Reserve Bank is designing, people are spending less money, so their wages are going up but their revenues are going down, and a lot of them are starting to see their car loans come through because they went and bought Hiluxes during that period. It will be a really big crush, I am concerned we are going to get squeezed very, very hard.”
frank.chung@news.com.au