Australia and home loan rate hikes !!

| October 11, 2009

The $64 million question is how quickly will rates rise from
here? At the start of the last rate hike cycle in 2002, the
Reserve Bank made two quick-fire rate hikes before retiring
to the sidelines.

home loan australia rate hikes banks reserve bank

How much pain will a 25 basis point hike cause for

borrowers?

Actually, not a lot. The Commonwealth Bank
estimates that more than 90% of its home loan customers are
ahead in their loan repayments. That is, when interest rates
were cut, most customers elected to maintain existing
repayments. The main burden of the rate hike will hit those
who have purchased or built homes relatively recently. And
the higher loan repayments will certainly be factored in by
budding home buyers in coming months.

But at that time the low point for rates was
4.25% – much closer to the ‘normal’ or neutral zone around
5%. In the past the Reserve Bank has lifted rates a few times
before resting to gauge the impact. Another rate hike on
Melbourne Cup day is a safe bet and over the next year cash
rates will likely lift to around 4.5%.

It had to happen sooner or later, but a clearly confident
Reserve Bank believes that now is the time to be removing
‘emergency’ rate settings. The emergency is over, and now a
more appropriate level of interest rates needs to be put in
place.

Ref: craig james (comsec )

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Category: Australia, home loans, home rates, Rate Rise, rates

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