Research shows that Australians are prepared to borrow big regardless of risks.
Nearly one in five Australians was left hanging after making financial decisions to prepare for a rate cut that never came, according to new research from money.com.au.
The money.com.au survey found that 17 per cent of Australians actively made decisions in the expectation the Reserve Bank of Australia (RBA) would announce its fourth rate cut last October. But the change never came.
Of this percentage, 31 per cent took out, or switched to, a variable personal loan, home loan or car loan in expectation of lower rates, while 11 per cent borrowed more on their home loan, thinking interest rates would fall a further 0.25 to 0.5 percentage points.
Also, 10 per cent ramped up their spending towards the end of 2019, and eight per cent began planning for bigger purchases such as holidays.
The results indicate how many Australians will take any opportunity to borrow big regardless of risk.
“For borrowers who expected the fourth rate cut last year, we can see that many chose to increase their borrowing rather than pay down more of the principal and pay debt off faster,” said money.com.au spokesperson Helen Baker.
Apart from Australians’ seeming lack of concern around debt levels, Ms Baker said it showed Australians were confident “their employment income will continue, and they are comfortable with their ability to service loans at a higher level”.
She added that these same people were unlikely to have concerns that reduced interest rates were “a form of stimulus to deal with bigger economic problems at play, such as low wage growth and a poorly performing retail sector”.
The RBA is expected to announce a 0.25 per cent rate cut at 10am Tuesday morning.
The revised forecast comes after Australia’s sharemarket has fallen for seven consecutive sessions and closed at a six-month low last night.
Did you make any financial decisions in anticipation of an October rate cut? Or did you play it safe? How will the next rate cut influence your financial decisions?
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