The effect of rising interest rates isn’t likely to start hitting car buyers until next year, says the NAB’s chief economist.
The National Australia Bank’s (NAB) chief economist says car buyers shouldn’t have to worry about the ripple effects of rising interest rates and home repayments until the first few months of next year.
Alan Oster, who has worked at NAB since 1992, believes most people are currently shielded from the full impact of rising rates.
Many still have fixed-rate home loans at lower rates, advanced on their housing repayments during the COVID-19 pandemic, or have a buffer in their budget.
This means there have been few signs of a credit crunch or a drop in demand for auto finance, even though the Reserve Bank has now raised interest rates for five straight months to lift the official spot rate at 2.35%.
“We believe they will start to have an impact from the end of this year or the beginning of 2023,” Oster said. Conduct.
“That, however, seems a little off – given the delays in rate hikes and people paying more (on home loans).”
He said a combination of factors were expected to affect car finance in 2023, from the default rate on bank loans to falling home values following the COVID price spike in many parts of Australia.
Some people may also find that the amount they can borrow will decrease, depending on factors such as their household net worth and their ability to “insure” repayments.
“I guess overall things will get tougher for consumers in 2023 than they are today,” Oster said.
“So the picture is quite complex. But, again, not a disaster.
Mr Oster said the NAB believes the full impact of the rate hikes will be felt in the second half of next year.
“Major deployments are from mid-2023. Many studies show great success – and especially cars,” he said.
“Right now, however, defaults generally in personal banking, and more generally, are very, very low and we don’t see much happening.”
He thinks the overall impact of housing finance will have the biggest ripple effect on auto purchases.
“Obviously cars will be affected as consumers start to have to pay more to pay higher fares and therefore reduce discretionary spending,” he said.
“Another thought is the impact on perceived wealth of house prices. We have a combined decline in house prices of around 20% between 2022 and 2023.”