 Interest rates on the rise
Home loan interest rates are more than likely to rise on Melbourne Cup Day, according to leading economists.
Predictions are for seven consecutive rate rises over the coming months, with the Reserve Bank of Australia expected to increase rates at every monthly policy meeting for the next seven months.
RBA governor Glenn Stevens has been giving strong signals that rates will rise as the economy recovers.
Financial markets are bracing for a 0.5 per cent increase on November 3, adding more than $100 per month to a $400,000 mortgage loan.
In September 2008, the Reserve Bank moved to cut official interest rates and followed with more dramatic rate cuts for several months, until reaching 3 per cent in April of this year. Banks passed on most of the rate cuts to home owners. It remained there until last month when the RBA moved to increase the cash rate 25 basis points up to 3.25 per cent. Banks and other lenders followed again, raising variable rates 0.25 per cent.
Mr Stevens said it would be a mistake to be too slow to raise rates in response to a brighter economy. "If we were prepared to cut rates rapidly, to a very low level, in response to a threat, but then were too timid to lessen that stimulus in a timely way when the threat had passed, we would have a bias in our monetary policy framework," Mr Stevens warned.
Welfare groups are however worried that constant rate rises will put some households in mortgage stress. If mortgage rates reach the dizzying heights seen in 2008, when variable home loan rates reached close to 10% some Australian households could find mortgage repayments tougher than at present.
The real estate industry is also on alert, concerned at what affect rising rates will have on the property market.
The rising interest rates coincide with the gradual withdrawal of the first home owner grant boost. The FHOG was increased last year during the worst of the financial crisis, but as of December 31 is due to revert back to the original $7,000.
CommSec's Savanth Sebastian said due to the Australian economy bouncing back much better than expected, a November rise of 0.5 per cent was almost inevitable.
Join the discussion on Interest Rates - Up or Down?
|