Because? Because banks must assess how much the minimum payments of each loan will change, and this can be influenced by whether the client is ahead of their scheduled payments. Once banks determine if a customer’s minimum payment needs to be increased, they typically give the customer one month’s notice of any increase. So, in total, there are typically two three-month lags between the RBA rate increase and the actual increase in your refunds.
But there is also another reason why households are taking much longer to feel the full effect of rate hikes: a boom in fixed-rate loans during 2020 and 2021. Back then, when the interest rate was 0 .1%, an unusually high figure for Australians locked into fixed rates, and many of these cheap loans have not yet matured.
As a result, these customers are temporarily shielded from the full effect of the rate increases. Jarden economist Carlos Cacho estimates that across all mortgaged homes, only about 70 percent of the rise in interest rates has been felt so far.
Economists have always said that monetary policy (change in interest rates) operates on “long and variable lags.” But due to the large number of fixed rate loans written during 2020 and 2021, the delay is longer in this cycle of rate increases.
“This time, the delays are greater,” says Cacho.
The upshot is that it will take longer than usual to know how much pain households, and the broader economy, are feeling from rising interest rates.
So far, while it’s clear some borrowers are being squeezed, the total number of major bank mortgage customers lags behind refunds remain historically low.
But banks are warning that the stress will inevitably increase and see the next six to 12 months as the real test for borrowers.
And, of course, none of this takes into account the risk that RBA Governor Philip Lowe will hike interest rates further – something economists see as a real possibility.