Of the RBA’s 4.25 percentage points of interest rate rises since May last year, the average borrower is paying about 3.6 percentage points extra, allowing for discounts from banks engaging in a mortgage competition war. The vast bulk of households are in a strong position to withstand higher rates. Some analysts have leapt on RBA estimates that a cash rate of 4.35 per cent will plunge between 6 per cent and 14 per cent of variable-rate owner-occupier borrowers into negative cash flow.
The range depends on whether private school fees and private health insurance are included as essential living expenses for all borrowers. Of the households in negative cash flow, the RBA estimates 70 per cent have savings buffers worth at least six months of loan repayments. Anecdotal evidence suggests the “Bank of Mum and Dad” is placing surplus funds in the offset accounts of indebted adult children. The remaining 30 per cent in negative cash flow positions with less than six months of savings represent about 1.5 per cent of all variable-rate owner-occupier borrowers
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