On the first Tuesday of each month, staff at Foodbank Australia brace for news of another interest rate rise by the Reserve Bank. They know what’s coming if there is one. “As early as the next day, we start seeing an increase in demand for food relief because people are so stretched right now,” the Foodbank Australia chief executive, Brianna Casey, tells Guardian Australia.
“There’s no buffers left for people to rely on,” Casey says. “So when we do see these increases, it’s an almost immediate impact on the household budget.”
And, like clockwork, the relief organisation registered an immediate uptick in online inquiries after the RBA lifted its cash rate on Tuesday for a 13th time in 18 months.
“We know that half of all renters and a third of all mortgage holders are struggling to put a meal on the table and that was before this latest increase,” Casey said.
The central bank on Friday said it was “mindful that many households are facing a painful squeeze on their budgets”. Raising interest rates to quell inflation was necessary, though, because “high inflation makes life difficult for everyone and damages the functioning of the economy”.
“It erodes the value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens income inequality,” the RBA said.
For individual families the consequences of higher borrowing costs can be the difference between paying bills or skipping meals, or worse.
The number of calls to the National Debt Helpline has jumped by almost a third this year, according to Financial Counselling Australia. For Victoria and the Australian Capital Territory, demand is about 40% higher.
There has also been a shift in the nature of the calls. Previously, the top reason for which people sought urgent help on their finances was to cope with credit cards and energy bills.
“This year for the first time, mortgage arrears is the top reason, followed by credit card debt,” says Claire Tacon, an assistant director of financial counselling at the Consumer Action Law Centre, which operates the helpline in Victoria.
A typical caller in the past was prompted by a misfortune or other change, such as a relationship breakdown, illness in the family or loss of a job, triggering hardship.
Now, a new cohort is ringing in. “They might be a two-income household, but … their income has stayed the same while everything else has gone up”, including debt repayments, Tacon says.
“People will do anything to avoid falling behind on their home loans,” she says, but it is often exposure to buy now, pay later loans or credit cards that leave them vulnerable.
Counsellors will typically try to get as much information from a client to understand their situation. That may lead to finding remedies if lenders have been irresponsible, with the Australian Financial Complaints Authority alerted if appropriate. States, too, offer various utility or other relief grants, Tacon says.
Competition among financial companies can mean borrowers are able to refinance at a lower interest rate. That choice may not be an option for clients who have already missed loan repayments or have received default notices, she says.
If borrowers are able act early enough, savings can be significant, according to RateCity.
For instance, an owner-occupier who was paying an annual mortgage interest rate of 2.86% in April 2022 just prior to the RBA rate hikes would have been looking at an interest rate of 6.86% as of the end of September.
By refinancing they could now being paying 6.18%, the equivalent of dodging about two and a half of the RBA’s rate increases.
“The idea of publishing this data originally was for the RBA to show that there was a gap between new customer rates and existing customer rates to really encourage people to stop being so complacent,” RateCity’s research director, Sally Tindall, says.
“But we’re really not complacent any more … We’ve jumped on the haggling refinancing trade, which is fantastic.”
To Foodbank’s Casey, though, the clients seeking help from her organisation face a “compounding and really cascading nature of hits to the family budget” that may take more than talking to their banks to address.
“The road to recovery tends to be longer and more complex than the crisis phase,” she says. “Experience tells us that what’s coming next could be even more challenging.”
This article was amended on 11 November 2023 to clarify that Claire Tacon is an assistant director of financial counselling at the Consumer Action Law Centre, not an assistant director at Financial Counselling Australia.
