Young home buyers are cutting back heavily on their spending, in some cases by up to almost a third, under pressure from soaring living costs and interest rates, according to Australia's largest mortgage lender.
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Commonwealth Bank of Australia chief executive Matt Comyn has told a parliamentary committee that although the number of borrowers failing to make repayments is "very low...it is clear that many more are feeling under pressure".
"Many households are pulling back on discretionary spending and dipping into accumulated savings," Mr Comyn said, adding that around two-thirds of households were being financially stretched.
The Commonwealth Bank boss said the financial strain was particularly acute for recent home buyers and renters.
![Commonweath Bank CEO Matt Comyn appearing remotely before the House of Representatives Economics Committee on Thursday. Picture by Sitthixay Ditthavong Commonweath Bank CEO Matt Comyn appearing remotely before the House of Representatives Economics Committee on Thursday. Picture by Sitthixay Ditthavong](/images/transform/v1/crop/frm/202296158/91246e68-e621-4b5b-a800-8a6c732050d6.jpg/r0_281_5500_3385_w1200_h678_fmax.jpg)
"Those with a mortgage are bearing the brunt of monetary policy, but renters are also facing sharp increases," Mr Comyn said.
"Among younger people who bought their first home during the pandemic, the majority have now reduced their spending, and a third have reduced it by more than 30 per cent year on year."
The bank's information supports the assessment of Reserve Bank of Australia governor Philip Lowe, who said on Wednesday that high interest rates were working to slow demand.
"Consumption growth is weak, so monetary policy is working," the RBA governor said.
"People are trading down to cheaper items and, in some cases, smaller baskets.
"That's largely because of what's going on with monetary policy but also the declining real incomes from our inflation."
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Dr Lowe said whether or not the Reserve Bank hikes rates on August 1 "remains to be determined".
Mr Comyn said his expectation was that interest rates would increase to 4.35 per cent next month but that would be the peak of the tightening cycle.
June quarter inflation data due out on July 26 and employment figures to be released on July 20 would be "two key data points feeding into the RBA's decision," he said.
There are signs that the labour market is losing some of its heat.
According to the Australian Bureau of Statistics, the number of workers on business payrolls grew by just 0.3 per cent in the month to June 10, a significant slowdown from earlier this year when monthly payrolls were growing by up to 2.6 per cent.
The Reserve Bank and the federal government expect unemployment to increase as the economy slows, adding to the brake on spending and reducing the pressure for wage increases.
Highlighting differences in the impact of inflation and interest rates between age groups, the CBA chief executive said those aged 30 to 34 years were experiencing the greatest financial strain and it was lowest for those aged 60 to 74 years.
CBA deputy chief executive David Cohen said there was also a "considerable reduction" in spending among those aged 25 to 29 years, many of whom may have only recently left the family home, including a high proportion who are renting.
Mr Cohen said it was likely that the financial pressure was also limiting their ability to save.
Asked what were the biggest risk factors for borrowers to fall into arrears on their home loan, Mr Comyn said the biggest cause was losing a job, followed by significant illness and relationship changes like marriage breakdowns.