FBAA head ‘dumbfounded’ by RBA governor comments

What was said?

On Wednesday (7 June), the RBA governor delivered a speech to the Morgan Stanley 5th Australia Summit in Sydney, in which he outlined the central bank's strategy for returning inflation to target in a reasonable timeframe while keeping the economy on an even keel.

After his speech, Mr Lowe was asked about RBA analysis showing that 15 per cent of variable-rate borrowers would be in negative cash flow if they made no changes to their spending behaviours, and how much further he thought interest rates could rise before there was a serious rise in mortgage arrears, foreclosures, and defaults.

In response, Mr Lowe said: “Those calculations that you referred to were based on the assumption that people made no adjustments. So, if people can cut back spending, or in some cases find additional hours of work, that would put them back into a positive cash flow position.

“That’s not to say that there’s not very significant stress out there on households at the moment but as I showed in the chart [in the speech], arrears rates remain low. People are affording to pay their mortgages, even as they roll off their fixed-rates loans to variable-rate loans, the arrears rates remain low.

“But the banks are telling us that it’s understandable that people are having to cut back on spending and I think that’s going to be in the environment we’re operating in for a while yet. People will make their mortgage payments but will have to cut back spending in other areas.”

‘How much more should people suffer?’ asks FBAA head

The managing director of the FBAA said he was ‘dumbfounded’ by Mr Lowe’s comments, which came a day after the central bank hitched rates up for the 12th time in 13 months.

Mr White flagged recent FBAA research, which showed that 28 per cent of Australians with a mortgage have already taken additional work while 30 per cent were considering it in April and most probably have by now.

“We also found that 61 per cent of mortgage holders have cut back on weekly spending including groceries, 37 per cent have cancelled holidays, 27 per cent have withdrawn from offset and savings accounts and 61 per cent have cut back on leisure and social activities,” Mr White said.

“So my question to Mr Lowe is this: how much more can Australians bear and why should they suffer more because the RBA failed to prepare Australians by keeping rates so low for so long when the global indicators clearly indicated rate rises were coming?”

Mr White said it was “‘mind-blowing” that the RBA hadn’t anticipated the situation Australians are facing today.

“They should have acted earlier and raised rates over a longer period in smaller increments,” Mr White continued.

He again called on the Australian Prudential Regulation Authority to immediately lower the 3 per cent loan serviceability buffer for mortgages, so that people can refinance more easily.

“So many borrowers are struggling to refinance because of this buffer, which was necessary when rates were lower but should be adjusted now,” Mr White said.

“I also urge the RBA governor to better understand the overall effect these rates are having on the economy and people, and pause rate rises for at least four months.”

[Related: Mortgage holders are ‘on the brink’, FBAA warns]