Remarks recently from PIMCO co-head of Asia Pacific Portfolio Management Rob Mead:
- Australia is fast approaching a mortgage cliff for fixed rate mortgages
- will place further pressure on households and the economy
- [fixed rate loans] … got to almost 50 per cent in the middle of 2021 … by the end of 2023, over 50 per cent of outstanding fixed rate mortgage loans with the big four banks will have rolled over. This translates to around 17 per cent of all housing loans.
- “We’re now at the absolute peak of those mortgages switching over. This is important because most of those loans would have had a 2.5 per cent interest rate attached to them and so as they move into floating rate territory they’re going to have around a 5.5 to 6.5 per cent rate applied”
- “So that cliff is very powerful and definitely something the RBA will be looking at. It will definitely be a driver of how tight monetary policy needs to be moving forward.”
(ps. the fixed rate loans ‘cliff’ is not a new idea, it’s a widespread discussion point in Australia and has been for many months)
As for his outlook on the economy:
- “The idea that interest rates will miraculously come down and miraculously we’ll get a soft landing, we think that’s fool’s paradise,”
- recession is now our base case”
Earlier, a similar view for the US: