 Cash rate may reach 7.25 per cent in the next two years
Leading economists forecast mortgage rates will blow up to 10 per cent in 2012 as a result of continuous rate increase of Reserve Bank to prevent inflation. Commodity prices and rising employment are the major factors putting pressure on rates.
Economists at Macquarie Bank and Commsec have both predicted the cash rate will reach 7.25 per cent in the next two years if the economy continues to perform very well.
While according to Josh Williamson, Citibank Chief economist the interest rate forecast will obviously affect mortgage repayments.
"The banks' margin above the cash rate has crept up to almost 2.90 per cent so the cash rate doesn't even need to rise as high as last time (for mortgage rates) to hit double figures," said Williamson.
Rory Robertson, Macquarie's interest rate strategist, says that they already know how the Reserve Bank will respond to the inflation threat which is the same way it reacted during the 2008 major credit crunch brought about by the Lehman Brothers.
This news definitely will terrify home owners who availed of property mortgages when rates were still low last year.
Mortgage brokers have advised potential home buyers to factor in at least another two percent of rate increase into their calculations before deciding how much to loan.
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