The Reserve Bank of Australia's strategy to curb inflation through higher interest rates is placing a heavy financial burden on middle-income mortgage borrowers, according to recent analysis. Research and bank data reveal that these households, particularly younger families, are experiencing the largest cash flow reductions from rate hikes, even as savers benefit from higher deposit returns.
Since interest rates began rising in 2022, Australian households have gained 72 cents in deposit income for every additional dollar paid in mortgage interest. This offset means that while higher rates slow overall household spending, borrowers still face steep repayment increases. The 'cash flow channel' mechanism, where borrowers have less disposable income as loan repayments rise, is the most visible effect for mortgage holders but not the primary way higher rates reduce inflation, according to RBA officials.
Spending patterns further highlight the uneven impact of higher rates. Commonwealth Bank data shows that Australians under 55 have reduced spending growth over the past year, while those over 55 have increased consumption. RBA research from 2025 confirms that middle-income and middle-wealth mortgage holders, especially younger families, suffer the largest cash flow hit from rising rates.
RBA Governor Michele Bullock acknowledges that mortgage borrowers are clearly hurt because they have less cash flow and less money to spend. Chief economist Sarah Hunter also notes that the mechanism is a blunt tool, particularly for first-time buyers who stretch to enter the housing market before rates rise.