interest rates offered by major banks have been volatile in recent weeks<\/a>, with a series of cuts and hikes designed to move borrowers away from fixed rates and towards variable rate loans in anticipation of an earlier increase.<\/p>\nA recent survey commissioned by the Finance Brokers Association of Australia showed that 75 per cent of respondents believed an interest rate hike would put added pressure on their finances, with 56 per cent saying they would need to refinance their home if rates were to rise.<\/p>\n
Most alarmingly, 57 per cent of respondents said they were \u201cnot at all\u201d likely to be able to meet a monthly increase to their mortgage of $300, or 1 per cent for the average mortgage of $571,992, with just 9 per cent saying they would \u201chighly likely\u201d be able to deal with it.<\/p>\n
FBAA managing director Peter White AM, who has spent 40-years in the finance and broking industry, said the survey showed many Australians had possibly grown complacent, with the last increase to the official cash rate occurring more than 10 years ago.<\/p>\n
\u201cMany Australians are clearly on the brink and are sleepwalking into disaster, living in the false hope that rates will stay this low,\u201d Mr White said.\u00a0<\/p>\n
\u201cThis survey is a wake up call and shows that even a small rise in rates \u2013 which is looking more likely next year with rising inflation – could be catastrophic for our nation.\u201d\u00a0<\/p>\n
Mr White said borrowers must start preparing for the inevitability of a rate rise, with economic indicators such as inflation and employment numbers starting to point towards a hike as early as next year.\u00a0<\/p>\n
\u201cThe housing market has soared and there is a reasonable chance it will undergo a correction, meaning that those with low deposits who have stretched themselves to make large repayments could see themselves with negative equity, owing more than the value of the property,\u201d he said.<\/p>\n
\u00a0\u201cAdd a mortgage increase they can\u2019t pay, and there could be a lot of people in real trouble.\u201d\u00a0<\/p>\n
On the flipside, research by the Property Investment Professionals of Australia showed that historically, interest rates have had little influence on whether Australian property markets boom or bust.\u00a0<\/p>\n
PIPA chairman Peter Koulizos said analysis of five periods of increasing cash rate movements since 1994 showed house prices continued to rise after interest rates were hiked.\u00a0<\/p>\n
None of those periods involved a decrease to housing values, while the gains ranged from a 1.1 per cent increase from June to December 1994, to a 35.7 per cent gain from\u00a0March 2002 to December 2003.<\/p>\n
Mr Koulizos said the strength or weakness of property markets often had more to do with the local economy, consumer sentiment and affordability.\u00a0<\/p>\n
\u201cThere has been much conjecture over the past 18 months that record low interest rates are the singular reason why property prices have skyrocketed, when the cash rate was already at a former record low of 0.75 per cent before the pandemic hit,\u201d he said.\u00a0<\/p>\n
\u201cThere are clearly a number of factors at play, including some buyer hysteria I\u2019m afraid to say, but one of the main reasons for our booming market conditions is easier access to credit, which was simply not the case two years ago when rates were also low.\u00a0\u00a0<\/p>\n
\u201cAt the end of the day, even when interest rates are low as they have been for years now, if people don\u2019t have access to finance, it really doesn\u2019t matter what the cash rate is.\u201d\u00a0<\/p>\n
Mr Koulizos also responded to concerns around borrowers not being able to maintain their mortgage payments, dismissing them as alarmist and little more than scaremongering.\u00a0<\/p>\n
\u201cThe latest ABS Lending Indicators showed that the national average loan size for owner-occupier dwellings was $574,000 in September, which shows that the vast majority of people are not racking up massive singular mortgages of $1 million or more,\u201d Mr Koulizos said.\u00a0\u00a0<\/p>\n
\u201cWhile we don\u2019t expect rates to rise for a year or two yet \u2013 and when they do, they are unlikely to ramp up rapidly \u2013 the monthly mortgage repayments on a $574,000 loan may increase by about $73 per week if the interest rate increased one percentage point. or from three per cent to four per cent.\u00a0\u00a0<\/p>\n
\u201cIt\u2019s vital to understand that new loans are already being stress-tested against much higher interest rates of about 5.65 per cent, so there is little to be gained by alarmist \u2018forecasts\u2019 that are just not supported by the data.\u201d<\/p>\n<\/p><\/div>\n
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