Hi Property Lovers
It was bound to happen...the Reserve Bank has lifted the rates by 25 basis points. So what does this mean for you? I came across this article on Australian Property Investor:
The Reserve Bank of Australia (RBA) has lifted its official interest rate for the first time since March 2008.
In a move away from the 'emergency' setting of three per cent, the cash rate has risen by 25 basis points to 3.25 per cent.
Homeowners are being urged not to panic over the rise, with Ratecity chief executive officer Damian Smith claiming most Australians with a variable home loan should be able to afford a 25 basis point rise.
Rather than switching to a fixed rate, he says borrowers should stick to variable because they’ll save a lot more money.
The current benchmark standard variable interest rate is 5.78 per cent, he says, while the fixed three-year rate is 7.12 per cent.
"The difference in repayments for the average $270,000 home loan is about $226 per month for a three-year fixed rate compared to a standard variable rate," he says.
"According to our research, even if rates go up 1.3 percent in the next 12 months, you would still be $2600 better off over a three-year period by sticking with a variable rate than the current benchmark three-year fixed rate."
Smith says borrowers should start planning now for interest rate rises, by accelerating repayments.
Real estate bodies from around Australia expected the rate rise, but have urged the RBA to exercise caution when it comes to monetary policy.
The Real Estate Institute of Australia's (REIA) president David Airey says the RBA should be wary not to slow economic growth by increasing interest rates prematurely.
"There are still considerable question marks about the level of unemployment in future months and the equally important indicator of average hours worked," he says.
"On the housing front, whilst first homebuyers have been a force in the market this year, we need to see what impact the phasing out of the First Home Owners Grant Boost will have before increasing rates further."
In addition, he points out that building approvals flattened in August, which will have implications for building construction during the coming year.
"Holding back on demand for housing by further increasing interest rates doesn't address the problem of lack of supply," he says.
The Housing Industry Association says the increase will do nothing to alleviate the chronic undersupply of new housing in Australia.
Chief economist Harley Dale says although there are some encouraging signs for the economy, it's still far too early to call an economic recovery.
"There's a big risk that the increase in official rates will blunt consumer and business confidence that is crucial to the prospects for an economic recovery," he says.
"To date, the initial pick-up in new housing activity has been influenced by the combination of lower interest rates and the First Home Owners Boost. Now these key drivers are in reverse."
"The increase in the official cash rate will hamper recovery in rental investment, which has been a missing ingredient for a more broadly-based recovery in housing activity."
This information was gathered from:
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