Mixed reaction to rate rise – Extra $50 added to average repyaments

HOMEOWNERS can expect to pay just under $50 more a month on an average-sized mortgage after the Reserve Bank of Australia (RBA) raised its cash rate for the first time this year.

The central bank raised the rate by 25 basis points to 4.0% following its monthly board meeting on Tuesday, as predicted by a majority of economists. Last month the RBA unexpectedly left the rate unchanged after three increases late last year. It did not meet in January. RBA governor Glenn Stevens said despite recent interest rate rises, lending rates were still below average.”The board judges that with growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average;’ Mr Stevens said in a statement on Tuesday.

That decision was seen as a further step in that process. Assuming retail banks match the official rise, homeowners can expect to pay an additional $47 a month on an average $300,000 mortgage. While the decision to lift rates was part expected, the move comes at a time that will impact on the building industry.
The winding down of the government first home owners’ scheme and previous interest rate rises have shown housing affordability dropped by 15% on the Sunshine Coast in December and by 22.3% in Brisbane.

Housing Industry Association figures showed that before the December quarter, first home buyers had “a small window of favourable affordability conditions to enter the market,” HIA spokesman Warwick Temby said. “That window is now closing with affordability retreating to 2008 levels.” Mr Temby said.

Meanwhile Australasia’s largest real estate and property group, Ray White, says the residential housing market should be able to absorb the latest rise in official interest rates. Ray White chairman Brian White said this week’s decision by the RBA to lift the cash rate to 4.0% was no surprise and most mortgage holders would have been prepared for the increase. “We anticipate whilst the market will absorb this, the market will be increasingly concerned about how far these increases might go.” Mr White said. “There has been evidence that the four rises since October last year have had an impact.”

Mr White said mortgage holders and prospective home buyers were craving economic stability. “It would be good if the RBA now stood back and left rates on hold for a few months to create some stability.” he said. The need for stability was echoed by mortgage broker Loan Market with executive chairman Sam White calling for rates to be kept on hold for the  foreseeable future. Mr White said Tuesday’s decision by the RBA to raise the cash rate was no surprise and had been factored in by most mortgage holders but further rate rises would have an adverse impact on economic confidence. “What all Australians want is stability,” he said. “These rises have really put a lot of pressure on Australian families and we’ve seen that already start to influence how they’re looking at spending their money. “I think everyone would be happy to see rates left on hold for a while.

Given last year’s uncertainty, what Australians are looking for now is confidence moving forward.”The Real Estate Institute of Queensland (REIQ) has urged homeowners to re-adjust their budgets again in the light of the rise. REIQ managing director Dan Molloy said the decision to increase the cash rate by 25 basis points was contrary to the language used by the central bank in its last decision Mr Molloy said in explaining its decision to hold rates steady last month, the RBA indicated rates may need to be increased, over time, as economic conditions broadly evolved.

However, Tuesday’s rise follows an unprecedented three rate increases in a row at the end of last year. “This new rate rise may be a surprise to many homeowners, who may have believed the Reserve was prepared to sit on the side-lines over the short-term.” Mr Molloy said.

The latest rate increase is a reminder to mortgage holders to shop around if they are looking to refinance their home loan, according to the Mortgage and Finance Association of Australia (MFAA). “Changes to the official rate can present an opportunity to get a better deal.” MFAA’s Phil Naylor said.

Source: Sunshine Coast Daily

Photos: Mixed reaction to rate rise – Extra $50 added to average repyaments - click to enlarge