Variable-rate mortgages and high household debt make Australian consumers highly sensitive to interest rates, the IMF says, but house prices are still rising.
Already a subscriber?Australian households are more sensitive to changes in interest rates than virtually any other consumers globally because of the dominance of variable-rate mortgages, high levels of household debt and lax lending rules, the International Monetary Fund has found.
More than 80 per cent of the Australian mortgage market is typically priced at a variable interest rate, meaning most home owners see their mortgage rates adjust soon after the RBA changes the cash rate. Only Chile and South Africa, where fixed-rate lending is essentially non-existent, had a greater proportion of variable loans.
In countries with above-average household debt ratios like Australia, a 100 basis point increase in interest rates caused house prices to fall by 5 per cent over two years. In countries with low levels of household debt, the price decline was a more modest 2 per cent.Since it started raising the cash rate in May 2022, the RBA has argued that interest rates were no stronger in Australia than overseas.
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