Signs of cooling amid record mortgage repayments

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Higher-than-expected inflation figures throughout November have reversed expectations for further interest rate cuts, and the Australian Prudential Regulation Authority said it would significantly tighten bank lending standards for investors.

The combination of these two factors suggests price growth through 2026 will be lower than expected, Lawless said.

“As housing affordability has already expanded and worsened, it makes sense that fewer borrowers will be able to access credit as barriers to service become more apparent,” he said.

The fastest price increases continue to occur in regional areas. Values ​​in the north-west Victorian center of Mildura rose 18.5 per cent last year; The Queensland Granite Belt experienced a 19.7 per cent increase; In the city of Albany, in the southwest of Western Australia, there was an increase of 22.6 percent.

The Central Bank’s monetary policy committee will meet for the last time this year next week. Economists and financial markets do not expect any change in interest rates.

Since February, the bank has reduced the cash interest rate by 0.75 percentage points. The reduction on a $600,000 mortgage reduced required monthly repayments by almost $300.

But data from the Reserve Bank shows more homebuyers are not reducing their repayments and are in a strong enough financial position to pay off their mortgage faster.

The homeowner’s mortgage interest bill peaked at over $20 billion in the June quarter of this year; There was a 166 percent increase in the amount paid in early 2022, when official interest rates were only 0.1 percent.

But for the first time since 2022, the amount of interest charged to property owners fell, falling by $700 million to $19.3 billion in the September quarter.

The decline in interest payments and the rise in wages contributed to a sharp increase in extra repayments on home loans by the country’s borrowers.

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These “excess” payments increased by almost a third to $14.1 billion in the September quarter. Apart from two quarters during the pandemic when many households received government payments or accessed pension rights, this was the largest quarter of extra payments on record.

Last year, home buyers paid $51.6 billion more on their mortgages, an all-time high.

These higher refunds would normally signal a slowdown in consumer spending, which will be a key part of this week’s national accounts due on Wednesday.

However, consumer spending is expected to increase by 0.5 percent through the September quarter. In addition to a surge in new business investment and a jump in new residential construction, driven largely by data centers, economists expect overall economic growth to have picked up in the past three months.

Analysts forecast GDP growth to exceed 2.1 percent last year; This rate is the strongest performance since the beginning of 2023.

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