Westpac forecasts higher interests rates: Borrowers warned to brace for higher repayments
Monthly repayments could soon cost borrowers a lot more cash if Westpac’s predictions for rate rises do come to fruit...
An industry expert has offered insight into why so many are still struggling to get into the property market.
According to analysis by CoreLogic’s principal researcher Cameron Kusher housing property prices are a much larger burden on investors than the historically high interest rates experienced in the early 90s.
“Although dwelling values have reduced over recent years, housing is in most instances (much) more expensive than it has been in the past,” said Mr Kusher.
Interest rates, then and now
While interest rates are now at historic lows, those saving for a property are still at a disadvantage.
“When standard variable mortgage rates for owner-occupiers hit their peak at 17 per cent between June 1989 and March 1990, 12-month term deposit rates for savers hit as high as 16 per cent,” explained Mr Kusher.
“Today, standard variable mortgage rates are recorded at 4.94 per cent and 12-month term deposit rates are at 1.65 per cent,” he added.
Low inflation hurts
Inflation is at record low levels currently and was much higher in the past.
While many people tend to not consider it, higher inflation is typically accompanied by higher interest rates but equally if the cost of everything is increasing more rapidly, it results in the erosion of the real value of a mortgage, Mr Kusher states.
Given this, the higher the inflation rate, theoretically the quicker a mortgage is paid off. While this doesn’t necessarily impact on those saving for a deposit it does mean that once they take out a mortgage they can pay it off relatively easier with higher inflation than with lower inflation.
Saving for a deposit
Saving for a mortgage has always been difficult, according to Mr Kusher.
However, high property values, insecure employment, low inflation, and low interest rates make it more difficult than ever to save for a mortgage, Mr Kusher continued.
“Supporting this opinion is renting continues to rise while the share of owner-occupier households both with or without a mortgage continues to fall,” he stated.
Solving the problem?
Mr Kusher believes improving access to potential first home buyers is extremely difficult, with grants tending to push the value of properties higher.
Unfortunately, falling dwelling costs has repercussions for the economy as a whole due to much of household wealth being tied up in housing.
“Ideally, after recent value declines the housing market shows modest gains over the coming years which would continue to gradually improve affordability even if it doesn’t address the key issue of saving for a deposit," Mr Kusher concludes.
Mortgages are loans that are used to buy homes and other real estate where the property itself serves as collateral for the loan.
Mortgages are loans that are used to buy homes and other real estates where the property itself serves as collateral for the loan.
Property refers to either a tangible or intangible item that an individual or business has legal rights or ownership of, such as houses, cars, stocks or bond certificates.