Australian borrower sentiment at record low as confidence falls to recession-type level after rate hike

Australian home borrowers are the gloomiest they have ever been following the Reserve Bank’s fifth interest rate rise this year, with overall consumer sentiment at recession levels.

The ANZ-Roy Morgan and Westpac-Melbourne consumer confidence surveys, released on Tuesday, have revealed mortgage-holders have never been so pessimistic.

This is occurring as overall consumer sentiment fell to some of the lowest levels on record, potentially pointing to a bleak Christmas sales period, with confidence sinking to recession levels.

The ANZ-Roy Morgan reading for the week ending last Friday fell 3.1 percentage points to 63.1 points, putting the key consumer confidence barometer even further below the 100-point mark where optimists are the majority.

This was the worst reading since the 62.3 score in the week ending April 5.

This followed the record-low score of 58.8 points taken in the last week of March, which was an all-time low in records going back to 1973, during the first full month of the Iran war.

The latest reading for last week was third worst ever score in records going back 53 years, based on telephone and online surveys of 1039 people.

ANZ economist Sophia Angala said the Reserve Bank of Australia’s fifth rate hike for 2026 on Tuesday last week, taking the cash rate to an 18-year high of 4.85 per cent, also saw mortgage holder confidence fall to the lowest level since 2008 when the question about home borrower sentiment was first asked during the global financial crisis.

“Together, elevated rates and historically weak confidence are likely to weigh on household spending,” she said.

But this wouldn’t necessarily stop another RBA rate hike.

“We think the cash rate has likely peaked at 4.85 per cent, although the risks remain tilted towards further tightening given the RBA’s concern about inflation expectations,” Ms Angala said.

A separate Westpac-Melbourne Institute consumer sentiment survey for November, based on a survey of 1200 adults taken last week, produced a consumer sentiment score of 78.2 points, which was the worst since late 2022 during another Reserve Bank hiking cycle and at recession levels.

“Prior to that, readings this weak had only ever been seen in the economy’s darkest moments: at the onset of the COVID pandemic; the height of the GFC; and during the recessions in the early 1990s and early 1980s,” Westpac’s head of macro-forecasting Matthew Hassan said.

The RBA’s latest rate rise saw sentiment among mortgage-holders dive by 11.6 per cent to a new-record low of 68.1 points, the weakest in records going back to 1994.

The latest rate rise is also coinciding with average petrol prices approaching $2.40 a litre, which Mr Hassan said pointed to weak Christmas sales.

“The negative mood is a troubling sign for retailers heading into the Christmas high season,” he said.

Australians are also expecting economic activity to weaken as a result of the RBA’s aggressive monetary policy tightening with a Westpac-Melbourne Institute question asking about the next 12 months producing a particularly dismal score of 70.3 points in November, which was the weakest since the early months of COVID in August 2020.

“Family finances and the loss of purchasing power are still at the heart of the current weakness in sentiment,” Mr Hassan said.

Economists at Australia’s big four banks are expecting the Reserve Bank to pause rates at its next two-day meeting next month but Mr Hassan said a February hike could not be ruled out.

“The next meeting a hike will be actively considered is likely to be in February next year,” he said.

“On balance, we do not expect a cash rate increase in February. However, high inflation will continue to test the RBA’s resolve.”