[Asia Economy Reporter Lee Chun-hee] Amid ongoing global interest rate hikes, concerns have emerged in Australia that 800,000 households could be hit hard by high interest rates as their mortgage loans switch from fixed to variable rates within this year.
According to major local media on the 1st, Marion Kohler, Head of Economic Analysis at the Reserve Bank of Australia (RBA), told the Australian Parliament's Cost of Living Committee that loans worth approximately 350 billion Australian dollars (about 305 trillion Korean won) are expected to switch from fixed to variable interest rates this year, estimating that this corresponds to roughly more than 800,000 households. Kohler stated that most of these loans were taken out during low interest rate periods, and as their fixed-rate terms end within this year, variable rates that are more than 3 percentage points higher than at the time of borrowing will be applied.
According to the price comparison website Finder, the monthly interest burden for those who took out a variable rate loan of 500,000 Australian dollars (about 435.25 million Korean won) before last year’s rate hikes has increased by an average of 910 Australian dollars (about 790,000 Korean won) compared to when they first borrowed. As the burden of interest repayments grows, disposable household income decreases, which could lead to reduced consumption and potentially trigger an economic recession.
Currently, Australia’s benchmark interest rate stands at 3.1%, but it is expected that the RBA will continue its rate hike trend, possibly raising the benchmark rate by an additional 0.25 percentage points at the monetary policy meeting on the 7th. This is due to persistent high inflation, with the Australian consumer price index rising 7.8% year-on-year from October to December last year. Kohler said, "We understand that many people are struggling due to high interest rates," but added, "It is necessary to raise rates further to prevent the high inflation situation from lasting too long."
On the other hand, Australian house prices continue to decline. Last month, the CoreLogic national home price index, a key real estate indicator in Australia, fell 1.0% compared to the previous month, marking the ninth consecutive month of decline. Prices dropped 7.2% compared to a year ago and fell 8.9% compared to the peak recorded in April last year.
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