Rising rates worry home owners

By webmaster

Home owners worried about rising interest rates are looking to downsize their properties to reduce the size of their home loan, according to Loan Market Group.

The brokerage’s chief operating officer Dean Rushton said there had been a significant increase in enquiries from mortgage holders about downsizing since the latest round of interest rate hikes.

“Our call centre rarely receives downsizing enquiries in any given week of the year, so the influx of this type of enquiry indicates mortgage holders are really feeling the impact of last month’s Reserve Bank rate rise,” Mr Rushton said.

“While it’s unlikely the RBA will lift the official cash rate again when its board meets tomorrow, people are concerned that rates will keep going up next year.

“There have been predictions that the RBA could raise the cash rate from its present level of 4.75 per cent to as much as 6.0 per cent by the end of 2011 and that has unnerved many mortgage holders.

“A lot of long-time home owners have memories of the recession in the early 90s when interest rates were much higher and they don’t want to be caught in that position again.”

Mr Rushton said downsizing can be a sensible and workable option for those able to move to a smaller property without compromising on lifestyle.

“By selling up and buying a smaller and less expensive property, people can then reduce their mortgages and create a comfort zone,” he said.

But Mr Rushton said selling a home and moving into a smaller property to reduce the size of the mortgage was not the only strategy to counter interest rate rises.

He said people also were considering fixed rates to guard themselves against higher home loan rates.

“One strategy for borrowers concerned about increasing rates may be to split the loan between a variable and a fixed rate, so any interest rate movements are hedged,” he said.

“Most variable rates are still lower than fixed rates on offer. Fixed rate pricing is driven by those who invest in the fixed rate wholesale markets, not the RBA.”

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