Rate rise puts pressure on households, housing and businesses

MORTGAGE holders, home buyers and businesses that rely on discretionary spending are among those expected to feel the effects of this week’s Reserve Bank decision.

The RBA increased the cash rate by 0.25 percentage points to 4.6 per cent on Tuesday.

While the decision was made for the national economy, its effects will be felt in Port Macquarie/Hastings household budgets, the local property market and the region’s shops.

For people with variable rate mortgages, repayments could rise once lenders pass on the increase.

That comes on top of the cost of groceries, a fuel price spike, and rising costs for insurance and other essentials.

Katherine Asquith, owner of Laurieton Footwear and Bowls, said the increase would be particularly difficult for younger homeowners who bought when interest rates were lower.

“Mortgage holders will unfortunately need to tighten their belts even further, on top of increasing fuel and grocery costs,” she said.

“The younger people in our community are going to feel this one, especially those who purchased property when rates were much lower.”

Ms Asquith said the effect would not be the same for every household. Some self-funded retirees who had paid off their homes could benefit if higher rates were passed on to their savings accounts.

However, for households paying off a mortgage, another increase in repayments leaves less room to absorb rising costs.

Theo Hazelgrove, co-chair of Community at 3, said he was concerned about the choices facing people already under financial pressure.

“We are seeing a sharp increase in mortgage stress,” he said.

“Many people are having to cut back on food, fuel and other essentials to make ends meet.

“If there is another interest rate increase before Christmas, many home buyers and businesses could face financial challenges that will be extremely difficult to manage.”

The rate rise also creates another consideration for people hoping to buy a home.

Higher borrowing costs can affect how much a buyer is able or willing to spend, while uncertainty about future repayments may cause some to delay a decision.

Local real estate agent Gaven Whalley said the current conditions were challenging across several parts of the property market.

“The current economic climate is very tough on everyone, and the decision to raise interest rates again will once again hit the property market hard,” he said.

Mr Whalley said fewer buyers investing in property could mean fewer homes being added to the rental pool.
Buyers purchasing homes to live in would not add to rental supply either.

At the same time, he said higher costs for existing rental property owners could lead some to raise rents or sell.

“The increased costs of owning a rental mean rents go up,” he added.

“However, it also means mum and dad investors are selling them too, putting massive pressure on the rental market.”

Uncertainty and caution were also reducing the number of buyers prepared to make a move.

For sellers, that made it especially important to respond to current conditions when deciding how to present and price a property.

“Now is a very testing time in the property market,” Mr Whalley said.

“Education and strategy are key to selling, but also to buying.”

The pressure on household budgets does not stop at the property market.

When people have less left after paying their essential bills, they may think twice about a meal out, a new pair of shoes, or another purchase from a local business.

Ms Asquith said that change in customer behaviour was already visible in her store.

“Customers are being more cautious about their purchases – there’s a lot less impulse buying,” she said.

“As a business, I’ve had to have sales to move stock, which affects my business, as my costs have also increased significantly.”

She said other businesses were also feeling the change, with lower margins and reduced revenue this year.

For local operators, the concern is twofold: customers are watching what they spend while the cost of running a business continues to rise.

Despite the difficult conditions, Mr Whalley said Camden Haven remained a place where people wanted to build their lives.

“We live in a beautiful area that many want to enjoy into their retirement or bring up young families, so we are very fortunate to live here and ride out some tough times,” he said.

This week’s rate decision will affect residents in different ways.

For some, higher interest on savings may provide a benefit.

For others, the immediate question is how to cover another rise in repayments while keeping up with everyday costs.

By Luke HADFIELD