Home-owners have built such big buffers on their mortgages that an interest rate rise will not affect many, according to Reserve Bank of Australia Governor Philip Lowe.
Lowe told the Senate that after two years of forced savings, because few could travel during the pandemic, there was an extra $250 billion in Australian bank accounts.
As well as boosted savings, many mortgage holders have kept paying extra on their loans over the past few years.
“Three years ago, the median borrower had a buffer the equivalent to one year’s interest and mortgage repayments,” Lowe says. “Today the median borrower has a buffer of more than two years of mortgage payments.”
While many speculate the RBA will try to cool house prices with an interest rate rise, Lowe says there is no “silver bullet” solution to slowing price rises.
He says the supply side needs to be addressed and that includes releasing well-located land, having good transportation and improving policies on planning and zonings.
The other buffer protecting households from the impact of a future interest rate rise is the requirement on banks to assess borrowers on their ability to repay loans at higher interest rates. The current buffer is three percentage points.
