$350bn fixed loan credit ‘rolling off’ to variable: RBA

Just how many fixed loans will be forced to ‘jump off the mortgage cliff’ in 2023 is hard to determine, but “back of the envelope” calculations puts it at around 800,000 ‘loan facilities’, the Reserve Bank of Australia (RBA) has explained.

Speaking at Wednesday’s (1 February) Senate select committee on the cost of living, the central bank’s Marion Kohler, head of its economic analysis department, and Tom Rosewall, its deputy, attempted to answer a series of questions about how Australians were being impacted by rising rates and their mortgages.

Asked by the Senate committee what the RBA’s view was on the quantity of fixed rates that will transfer to variable rates in the calendar year 2023, Ms Kohler replied: “Around one third of the outstanding housing credit is fixed.

“We think about half of that is due to roll off in the coming year.

“You can do that in billion dollars; that’s how we take a look typically about the loan.”

“So $350 billion is roughly the amount of credit that is rolling off.”

When asked how many loans that represented, Mr Kohler said that was quite a difficult question to answer.

“The team is actually looking further into that, but you need to do a little bit of ‘back of the envelope’ calculations,” she replied.

“We do have an idea of what we have … called loan facilities, and the number is somewhere in the high 800,000 that you’d be looking at.

“But that is not 800,000 households necessarily there.”

The reasoning given by Ms Kohler was that there would be people who might have more than one loan facility or have taken out a loan with different banks or they have a split variable rate loan.

“So it’s a little bit hard to kind of put that down [exact number] when we say that a person has a loan, so that’s likely to be a little bit less,” she confirmed.

“But that’s really a rough back of the envelope calculation as I understand it. It’s in the high 800,000.”

Managing through the tough periods

In their opening statement to the Senate committee, the RBA representatives acknowledged that a rising cost of living puts pressure on household budgets across the country.

“Many people are understandably concerned about how they and others will manage through a period when the cost of living has increased considerably,” they explained.

“The cost-of-living pressures currently being faced by all Australians are a result of a substantial rise in the rate of inflation over the past year or so.

“Annual inflation as measured by the Consumer Price Index (CPI) has increased from a little below 2 per cent in the years immediately prior to the pandemic to around 8 per cent at the end of 2022.

“Prices have risen significantly for many of the goods and services that people buy.

“Today, the higher cost of living is front of mind for many more people than was the case in the years leading up to the pandemic.”

The RBA appearance at the committee comes as the central bank prepares to announce its first cash rate call for the year. Several economists have forecast that the RBA will likely increase the official cash rate by 25 basis points next Tuesday (7 February) as it looks to curb high inflation

[Related: Fixed-rate ‘cliff’ to impact consumer spending]