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Cash rate could climb to 4pc

2

Interest rates could rise by up to 150 basis points over coming years, leading some experts to warn an elevated rate could become ‘the new normal’.

According to a survey by Finder.com.au, 18 out of 20 financial experts expect the cash rate to remain on hold until at least 2015.

“Recent comments from the RBA governor Glenn Stevens are clearly signalling that rates will stay on hold,” said AMP senior economist Shane Oliver.

“The next change will probably be a rate hike around June quarter next year.”

Finder.com.au money expert Michelle Hutchison warned elevated rates could become the norm.

“While lenders are competing harder to lock in borrowers with a fixed home loan, the finder.com.au monthly Reserve Bank Survey shows that we can expect to see interest rates rise to a new normal level of 150 basis points higher from next year,” she said.

“Most of our experts believe the cash rate won’t reach the historical average of about five percent, but rather reach around four percent, which is 150 basis points above the current cash rate of 2.50 percent,” she said.

She urged investors to start considering how rate rises would impact their portfolio.

“Interest rate hikes are on the horizon and look set to start rising very soon, so borrowers need to start preparing now before it’s too late,” she said.

Ms Hutchison suggested a borrower on a variable rate with a $300,000 mortgage would need to find an extra $300 per month for repayments if rates rose by 150 basis points.

“Fixed home loan rates are among the lowest levels we’ve ever seen so if you are concerned about rising rates and higher repayments, it could be worthwhile locking in before these potential savings are gone,” she said.

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