Will interest rates be next?

MANY have never seen anything like it – property values increasing to record highs and homes selling at unprecedented speeds.

Throw in some historically low interest rates, and you can see why people might think the market isn’t slowing down.

While first home buyers are dropping due to rocketing prices, the market is now enticing investors to chase capital growth on offer.

Although interest rates remain in the back of many investors’ minds, negative gearing still gives them a powerful incentive to pull the trigger, anyway.

Interestingly enough, the last time the RBA increased the cash rate was more than a decade ago when it lifted to 4.75 per cent in November 2010.

Since then, the RBA’s cut it 18 times down to 0.10 per cent, during which just over one million first home buyer owner-occupier loans have settled, according to ABS lending indicator data.

That means, approximately one million homeowners have never experienced an RBA rate hike. Wow.

The Reserve Bank hasn’t indicated a cash rate rise anytime soon. Yet lenders have already begun increasing long-term fixed rates. I guess the concern is that, some buyers are stretching themselves to get into the property market now without considering whether they can meet their repayments in in the future, should rates go up.

For example, if 2.5 per cent interest on a $500,000 loan today increases to 4 per cent by 2024, it will cost approximately $411.48 more per month in repayments.

To make matters worse, Victoria’s average home loan is actually higher, at around $560,000.

One of our biggest lenders, CBA, is warning interest rates will increase before the end of next year, with two other lenders predicting the Reserve Bank may have to move earlier than expected.

The argument against, however, is that unless wage growth and inflation are high enough, rates will remain unchanged for the next three years.

If, however, you’re worried about what an increase in home loan rates might mean for your mortgage and household finances, it’s a great time to get in touch with your mortgage broker. – Leigh Deledio, director, UFinancial