Home News Rate rise to prompt investor activity

Rate rise to prompt investor activity

Font size :

By Robert Carry

The Reserve Bank of Australia (RBA) has raised interest rates by 25 basis points taking the current cash rate from 3.25% to 3.50%. It's the second consecutive 0.25% rate increase introduced since the beginning of October. The latest move lifted the average variable rate to 6.26%, which is still well below its July and August 2008 peak of 9.6%.  

Tim Lawless, head of research at RP Data said that a slowing in house price value growth in September may have prevented the RBA from implementing a 0.50% increase. RP Data's results for September revealed property values increased by just 0.1% over the month.

"The residential property sector had been surprisingly strong over the first eight months of 2009 and a further surge in values in September would have almost certainly resulted in double the rate rise," he said.

Lawless added that rising mortgage rates will have a dampening effect on the market, particularly in the mortgage belts of Australia's capital cities. "First home buyer demand is already winding back, as evidenced by the number of housing finance commitments which fell for first home buyers by 23% in August," he said.

RP Data also believes that the rise in rates is likely to hit the price sensitive segments of the market the hardest. "First home buyers and low income households will feel the rise the most, whereas less price sensitive mortgage holders and prospective buyers will be less affected.  In fact, investors are probably welcoming the rise in the mortgage rates as it means less competition in the market place," said Lawless.

The move suggests the RBA is becoming increasingly confident that the Australian economy is through the worst of the global economic crisis.

The RBA's rate rise has been widely predicted by experts after the group said in the wake of the last increase in October that the cash rate was at an "unusually low level", adding that there was a necessity to return to a "more normal setting".

The rate hike will spell a significant increase in monthly repayments for people with variable rate mortgages. Mortgage holders can expect to pay an extra $57 a month on a $300,000 loan spread out over 30 years.

Looking ahead, economists including Craig James of CommSec and Shane Oliver of AMP Capital Investors believe that RBA is likely to stick to a gradualist approach in raising interest rates given the potential vulnerability of the economy to a too hasty removal of stimulus and given that the September quarter inflation figures were not bad enough to justify a more aggressive approach.

It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan

Mortgage News and Articles

New social housing aims to transform Ivanhoe Estate New social housing aims to transform Ivanhoe Estate

The sprawling redevelopment aims to boost the supply of affordable housing in Sydney Read more

A new suburb will be built in west Melbourne A new suburb will be built in west Melbourne Mount Atkinson will become home to more than 22,000 people over the next 15 years ... Read more

Surging house prices threaten liveability in Melbourne Surging house prices threaten liveability in Melbourne Analysts warn the city could become just as unaffordable as Sydney, if property trends continue ... Read more

More Aussies would benefit from regional hubs linked to cities More Aussies would benefit from regional hubs linked to cities Shorter commutes could spur higher home sales in regional towns, analysts say ... Read more

More mortgage news and articles

Sponsored Links

Thursday, Aug 17, 2017
Top Featured Rates
Top Bank Rates

Get help choosing the right home loan

Let us help you find the right home loan for your needs.

Tell us a bit about your circumstances:
  • Purpose of mortgage
  • Household Income
    $
  • How much do you want to borrow?
    $
  • How much deposit do you have?
    $
  • How much is your house worth?
    $
  • How much do you still owe on your mortgage?
    $
  • What type of mortgage do you have?


  • How much is your new home?
    $
  • How much do you want to borrow?
    $
  • How soon do you want a mortgage?
Next
  • First name
  • Last name
  • Where do you live?
  • Phone number

Special Offers

Related Keywords