\n
![](\"https:\/\/www.apimagazine.com.au\/media\/1001619\/auctions-rates.jpg\")
<\/p>\n [ad_1]
\n<\/p>\n
The prospect of interest rate hikes has yet to impact an Australian property market that continues to see auctions running hot, prices taking off and stock levels diminish.<\/p>\n
The RBA has kept rates steady at its 1 February Board meeting but prospect of eventual interest rate hikes has yet to impact an Australian property market that continues to see auctions running hot, prices taking off and stock levels diminish.<\/p>\n
While the experts remain divided on the likelihood of the Reserve Bank of Australia (RBA) raising the official cash rate this year, property buyers are facing the prospect of higher debt servicing costs and reduced borrowing power if rates do head north.<\/p>\n
The RBA has kept the cash rate steady at 0.10 per cent since November 2020, however, Westpac recently announced it expects the cash rate to reach 1.75 per cent by 2024 following a series of hikes, the first of which it is forecasting for August 2022.<\/p>\n
RBA Governor Philip Lowe said the\u00a0Board maintained the cash rate target at 10\u00a0basis points and the interest rate on Exchange Settlement balances at zero per\u00a0cent. It also decided to cease further purchases under the bond purchase program, with the final purchases to take place on 10\u00a0February.<\/span><\/p>\n \u201cCeasing purchases under the bond purchase program does not imply a near-term increase in interest rates,\u201d Mr Lowe said on Tuesday.<\/span><\/p>\n \u201cAs the Board has stated previously, it will not increase the cash rate until actual inflation is sustainably within the 2\u00a0to 3\u00a0per\u00a0cent target range. <\/span><\/p>\n \u201cWhile inflation has picked up, it is too early to conclude that it is sustainably within the target band.\u201d<\/span><\/p>\n The nation\u2019s experts remain split on whether the cash rate will rise before the end of the year.<\/p>\n The newly released Finder RBA Cash Rate Survey had 36 experts and economists weigh in on future cash rate moves and other issues relating to the state of the economy.<\/p>\n While almost all panellists (94 per cent) expect a cash rate hold in February, more than half (58 per cent) are predicting a rise this year. Just one in five experts expect it to happen in the first half of the year.<\/p>\n Graham Cooke, head of consumer research at Finder, said there had been a seismic shift in expectations of a rate rise in 2022.<\/p>\n \u201cA rate rise this year has moved from an \u2018impossibility\u2019 to a \u2018most likely\u2019,\u201d he said.<\/p>\n \u201cWith some lenders indicating multiple rises to come, Australian borrowers who purchased over the last few years of rock-bottom rates may be in for a shock when their mortgage costs start to climb.\u201d<\/p>\n Canstar analysis shows that if the cash rate rose by 1.65 per cent from 0.10 per cent to 1.75 per cent, the average variable interest rate would increase from 3.04 per cent to 4.69 per cent.<\/p>\n If this were to occur, single buyers on the median annual income of $77,900 could see their borrowing power reduced by $71,000 down to $388,000, while a couple earning the median combined income of $155,800 could see their borrowing power fall by $169,000 to $921,000.\u00a0<\/p>\n Estimated borrowing power by income<\/strong><\/p>\n
<\/p>\n
<\/p>\n
<\/p>\n
<\/p>\n
<\/p>\n
<\/p>\n
<\/p>\n
<\/p>\n
<\/p>\n
<\/p>\n
<\/p>\n
<\/p>\n
<\/p>\n
<\/p>\n
Source: www.canstar.com.au, Australian Bureau of Statistics. Prepared on 27\/01\/2022. Estimated Borrowing Power calculated using the Canstar Home Loan Borrowing Power Calculator. **Estimated borrowing power assumes the average variable rate (plus 1.65% where applicable) plus an interest rate buffer of 3% per APRA serviceability standards. See Notes to Editors for full calculation breakdown.<\/p>\n For single buyers earning a higher annual income of $150,000, their borrowing power could reduce by $152,000 to $831,000, while a couple earning a combined $150,000 could see their borrowing power slashed by $162,000 to $885,000.<\/p>\n Canstar\u2019s finance expert, Steve Mickenbecker, said when the rates tap was turned on it may be a while before it is turned off.<\/p>\n \u201cWhen the Reserve Bank hits the button on cash rate increases, history shows that it doesn\u2019t stop at one or two hikes, and usually results in at least a 1.5 per cent increase over 18 months or so.<\/p>\n \u201cWestpac is this time expecting a 1.65 per cent increase in just over two years.<\/p>\n \u201cWhen the Reserve Bank moves the cash rate up you can be sure the banks will move home loan rates up too, meaning higher loan repayments and for borrowers entering the property market or trading up, and this also means the capacity of incomes becomes stretched meaning they are forced to borrow less.<\/p>\n \u201cAlso anticipating higher rates, the Australian Prudential Regulatory Authority in October announced an increase to the loan affordability buffer from 2.5 per cent to 3 per cent, further accentuating the impact of interest rate increases.\u00a0<\/p>\n \u201cMany borrowers only remember interest rates falling, so a drop in borrowing power will come as quite a shock to buyers already facing the prospect of continuing runaway house prices.\u201d<\/p>\n Market not listening – yet<\/strong><\/p>\n The prospect of higher interest rates is doing nothing to subdue buyer activity, even as the major banks take the firsts steps towards raising rates independently<\/a> of the RBA.<\/p>\n\n\n
\n \u00a0<\/th>\n Median Earnings<\/th>\n Average Variable Rate<\/th>\n Estimated Borrowing Power<\/th>\n
\n<\/tr>\n\n Avg rate (3.04%)**<\/th>\n Avg Rate + 1.65% (4.69%)**<\/th>\n Difference<\/th>\n
\n<\/tr>\n\n Single\u00a0<\/td>\n $77,900<\/td>\n 3.04%<\/td>\n $459,000<\/td>\n $388,000<\/td>\n $71,000<\/td>\n
\n<\/tr>\n\n Couple<\/td>\n $155,800<\/td>\n $1,090,000<\/td>\n $921,000<\/td>\n $169,000<\/td>\n
\n<\/tr>\n<\/tbody>\n<\/table>\n