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Prepare yourself for 9pc interest rates: BIS

By webmaster
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Interest rates on Westpac home loans might just sit stable – for now – if comments from the bank's chief today are anything to go by.


Despite concessions that funding costs and a challenging business environment are putting increasing pressure on the bank, Westpac boss Gail Kelly has dismissed any plans to increase mortgage rates over and above any hike to the official cash rate, as set by the Reserve Bank of Australia (RBA).

According to the Daily Telegraph today, Ms Kelly said the bank was “comfortable” with its existing level of interest rates.

Ms Kelly’s comments follow weeks of speculation that increasing funding costs would see them lift interest rates as soon as the election was behind us.

While Ms Kelly’s words seem to rule out any increase in borrowing costs for Westpac customers in the near term, rising interest rates are on the horizon, according to leading economists.

While numerous pundits have factored in a number of 0.25 per cent hikes to the official cash rate before the year is out, there’s still some road to travel in terms of this rate cycle.

Forecasts from research and analyst firm BIS Shrapnel today predict labour shortages and strong economic growth will put increasing pressure on inflation, which will in turn put place pressure on the official cash rate.

BIS Shrapnel predicts mortgage rates could reach around 9 per cent by 2013/14.

For first home buyers entering the market, it is important to take consideration of this rising rate cycle.

When determining your ability to service your mortgage repayments it’s prudent to factor in a 2 to 3 per cent increase to interest rates. If you’re comfortable borrowing at that rate, and the numbers stack up, look to press ahead. If things look tight, consider revising your maximum borrowing limit.

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