The RBA Governor, Phillip Lowe, suggested that when interest rates do increase, it “will come as a shock to some people”.
On this, Lowe is spot on.
It has been 7 and a half years since the last interest rate rise from the RBA which means that those who have taken on debt since November 2010 have only see their interest rate stay the same or move lower.
There are a few fun facts with this development.
Since the last interest rate hike, there have been 3,853,110 new loans written for housing. To be sure, there is some (a lot?) of double counting for people who have refinanced, bought and sold a few times and the like, but that is a large number of loans written in a flat or falling interest rate climate.
Since the last interest rate hike, the value of loans outstanding for owner-occupiers has risen by $366 billion to a total of $1.15 trillion. 1 percentage point extra in interest rate costs on that would pack some punch.
For investors in dwellings, the rise in debt outstanding since the last hike has been $214 billion to $589 billion. That is a lot of debt accumulated under the falling interest rate envoironment.
But it doesn’t end there. Business borrowing has increased by $217 billion to $905 billion which means there is a lot of business debt that will be hit by any interest rate hike.