Rising living costs, higher interest rates and the impacts to household bills

New research from Canstar reveals that 11 million Australian adults are worried they will be unable to afford household bills amid skyrocketing living costs. 

Housing costs including rent or mortgage repayments were cited as the biggest concern.

And 72% of borrowers will need to forgo certain expenses to afford higher loan repayments.

The effects of increasing living costs and interest rates

Rising living costs are hurting the hip pockets of Australians with an alarming number of people concerned about their ability to afford household bills as a result, according to new research from financial comparison site Canstar.

The nationally representative survey of 2,581 Australian adults found 56% - equivalent to more than 11 million people - are worried they will be unable to afford household bills amid skyrocketing living costs, while an additional 12% are unsure.

When asked about the household bills they are most concerned about, nearly one-third (29%) of Australians said their biggest worry was housing costs including rent or mortgage repayments.

Forking out for petrol (22%) was second followed by groceries (21%).

Canstar’s Group Executive, Financial Services, Steve Mickenbecker said: 

Costs keep rising for households with petrol prices reaching an eight-year high and supermarket shoppers reporting higher grocery bills, but the sting is about to get worse for some.

Anyone with a mortgage will likely feel financial pain when the Reserve Bank raises the cash rate this year as predicted by some of the major banks.

With demand in the economy driven by government spending rather than wages growth, the federal budget leaves the Reserve Bank in a conundrum.

If the Reserve Bank lifts the cash rate in response to inflation before wages take off, widespread household stress will follow.

Canstar’s survey found that if interest rates rise in line with some of the major bank forecasts, close to three quarters (72%) of borrowers would need to forgo certain expenses to afford home loan repayments.

The top three expenses borrowers would give up to afford higher home loan repayments are:

1. Restaurant meals and dining out (34%)
2. Holidays (31%)
3. Entertainment (29%)

Mickenbecker added: 

The hospitality, tourism and entertainment sectors are critical to Australia’s economic recovery and have been hit hard by COVID-19 lockdowns and restrictions.

Borrowers spending less in these areas is hard news following a tough two years for these industries.

There is little doubt that the banks will fully pass on the cash rate increases to borrowers, and it’s expected that multiple increases will follow.

Home loan interest rates are likely to be close to 2 percent higher in a couple of years.

Canstar analysis shows if the cash rate reached 1 percent this year alone, as predicted by one of the major banks, and lenders passed on the hike in full, the average variable rate would rise from 2.99 percent to 3.89 percent.

This would see monthly repayments for the national median home value of $805,621 rise by $322 per month to $3,036, costing borrowers almost an extra $4,000 per year and more than $116,000 in interest over the life of their loan.

Impact of rate rise to repayment on median house price in each capital city:

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.