Mortgage holders are switching home loans in record numbers amid fears interest rates will rise further as the Reserve Bank of Australia targets stubbornly high inflation.
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The value of owner-occupier loans being refinanced surged 9.1 per cent higher in November to reach a record high $13.4 billion, according to the Australian Bureau of Statistics, as borrowers scrambled to shield themselves as much as possible from climbing repayments.
The result adds to evidence that high inflation and the Reserve Bank's monetary policy squeeze are bearing down on households and businesses.
RBA data show the value of new loans being taken out by home buyers - both owner-occupiers and investors - plunged last year, from more than $32.5 billion in February to $25 billion nine months later, including a particularly sharp 20 per cent fall in borrowing by owner-occupiers after interest rates began rising in May.
By November, the value of loans to buy a new or existing home had fallen almost 26 per cent from a year earlier while funding for the construction of a new dwelling had dropped 16.1 per cent.
The data show that although house prices have dropped by an average 8.4 per cent since May, that has not been enough to lure many new entrants into the property market. In November just 8023 loans were issued to first home buyers, less than half the number taken out in January 2021.
In further sign of the financial stress on households, ABS figures indicate borrowing to buy household goods climbed 5.1 per cent in November to a record high $154 million in November.
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AMP chief economist Shane Oliver said the data showed that the recent rapid increase in interest rates was having an effect on the economy.
Dr Oliver said it was likely that interest rates were near their peak.
The most recent consensus view of economists was that the official cash rate, currently at 3.1 per cent, would rise to 3.6 per cent and markets expect it could reach above 3.7 per cent.
Data showing that the consumer price index rebounded to 7.3 per cent in November as retail sales surged 1.4 per cent higher has further spurred rate rise expectations.
But Dr Oliver is not convinced.
"I think there is a strong argument to pause in February," he said. "Monetary policy always impacts with a lag and there is a case to wait and see the effect of recent interest rate rises."
Signs that inflation in the United States is easing - the annual rate was 6.5 in December after peaking at 9.1 per cent last June - were promising, he said.
But ANZ senior economist Adelaide Timbrell expects official interest rates to reach 3.85 per cent this year, including a 25 percentage point increase next month.
Ms Timbrell said the unemployment rate, currently at 3.5 per cent, could slip even lower to 3.4 per cent and the high number of job vacancies supported the view that it would stay around these levels for much of the year.
Combined with the recent strong CPI result and evidence of sustained high consumer spending, the central bank would have little choice but to raise rates further, she said.
"It is very unlikely that we won't see a rate increase in February," Ms Timbrell said.
