- Cash rate tipped to top out at 4% next year
- Four out of five millennials believe it'll impact their holiday plans this year
- Seven out of ten households to cut back on Christmas spending
Aussies endured the seventh consecutive interest rate rise earlier this month, with the Reserve Bank of Australia (RBA) lifting the cash rate to 2.85%.
It was the first rate rise on a Melbourne Cup Day in 12 years, with the rate rises causing a trifecta of Christmas gloom this year.
New research has found that most Australians will be cutting back this year, spending less on holidays and gifts, with an elaborate Christmas lunch maybe going cold turkey.
Cash rate expected to peak at 4%, and inflation peak at 8%
Up until May this year, the Reserve Bank was keeping interest rates on hold at an all-time low of 0.1%, before sharply upping the ante every month.
In May this year, the cash rate went from 0.1% to 0.35%. It was the first time the Reserve Bank lifted the interest rates since November 2010 – the day of the Melbourne Cup – and the first time it has changed the rate since November 2020.
In June, the RBA took interest rates to 0.85%, July saw rates go to 1.35%, August then saw rates rise for the fourth consecutive month to 1.85%, September 2.35%, October 2.6%, and November 2.85%.
Industry pundits are predicting interest rates will peak somewhere around 3% to 4% by the end of next year.
In October, The Property Tribune reported one extreme scenario could see variable rates from banks (not the interest rate) could reach as high as 6.5%. Much earlier in the year, prior to the big global challenges, one prediction said interest rates would settle at around 2.25% by May 2024.
This month, Master Builders Australia Chief Economist told industry at a luncheon that rates were expected to peak at around 4% by September or October next year. Some pundits were predicting a tad more at 4.15% or 4.25%.
7 in 10 households cut back Christmas spending
Research conducted by YouGov for Aussie Home Loans found that seven out of ten households will be forced to reduce their expenses during the Christmas season.
It was also found that almost three in ten Aussies have already had their holiday plans impacted by the rate increase, while just under one in five planning to spend less on gifts.
“Now, more than ever, Aussies are keen to get back out and travel and enjoy the holiday season with family and friends, so it’s concerning that rate rises are getting in the way of these plans for so many people,” said Brad Cramb, CEO of Distribution for Aussie.
“As the holiday season creeps up, people are really starting to feel the pinch of higher repayments and with discretionary spending on the chopping block, holidays and Christmas gifts are the first to go,” said Cramb.
Millennials are one of the hardest hit, with more than four in five concerned about the impact of interest rates on their seasonal plans; over seven in ten (73%) Gen X’s were also concerned, and one in two Baby Boomers.
Refinancing relief
Savings can be made with refinancing, said Cramb: “For example – if you’re currently sitting at a home loan of $650,000 with a rate above 5% – there are refinance options available that could have you saving $95 a week, $400 a month or over $4000 across the year – a significant saving for many households ahead of the summer season.”
Aussie broker Michael Collins added that, “We’ve seen so many mortgage holders reclaim their holiday plans by picking up the phone and asking about refinancing.”
Top tips for saving money at Christmas
Aussie’s tips include:
- Know your home loan and ask:
- How does it fair in the market?
- Is it costing you more than it needs too?
- Take 20 minutes to give your finances and health check. Ask yourself what’s a nice-to-have and what you’d prefer to spend on most.
- Take it easy on the major purchases this Christmas, and if you are still feeling tight on cash, try making things at home and do a bit of Kris Kringle.
- Think about Christmas meals ahead and try buying food ahead of time where you can, cooking ahead of time and freezing.
- Consolidate your credit cards, and cut down on them, literally.
- Consider an offset account to reduce the amount you pay in home loan interest whilst still earning interest.
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Disclaimer: This article contains general information and should at no time be considered financial advice to the reader. The reader should always verify their situation with their financial advisors before taking any further steps.
