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...
A resurgence in Sydney and Melbourne housing values was likely a key consideration for the Reserve Bank, who at yesterday’s board meeting kept the official cash rate at bay.
Yesterday, the RBA board decided to leave the cash rate unchanged at 1.00 per cent.
“Inflation pressures remain subdued and this is likely to be the case for some time yet. In both headline and underlying terms, inflation is expected to be a little under 2 per cent over 2020 and a little above 2 per cent over 2021,” the statement by governor Philip Lowe said.
“There are further signs of a turnaround in established housing markets, especially in Sydney and Melbourne. In contrast, new dwelling activity has weakened. Growth in housing credit remains low. Demand for credit by investors continues to be subdued and credit conditions, especially for small and medium-sized businesses, remain tight. Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality.
"It is reasonable to expect that an extended period of low interest rates will be required in Australia to make progress in reducing unemployment and achieve more assured progress towards the inflation target. The Board will continue to monitor developments, including in the labour market, and ease monetary policy further if needed to support sustainable growth in the economy and the achievement of the inflation target over time.”
Commenting on the cash rate call, CoreLogic research director Tim Lawless said the resurgence in Sydney and Melbourne housing values was likely a key topic of conversation amongst the RBA Board this month.
“In line with rate cuts in June and July, housing values in Australia’s two largest cities have recorded a lift, with dwelling values rising 1.9 per cent and 1.8 per cent in Sydney and Melbourne over the past three months.,” Mr Lawless said.
“August data showed CoreLogic’s national index recorded its first month on month rise since October 2017 and five of the eight capital cities saw dwelling values increase.
“Clearly housing market conditions are responding to lower interest rates as well as the recent loosening of loan serviceability rules from APRA and the positive influence of the stable federal election outcome.”
The recent step up in the pace of value growth is likely to raise some concern that the lowest mortgage rates since the 1950’s is fuelling renewed housing market exuberance at a time when household debt remains around record highs, added Mr Lawless.
“High levels of household debt are manageable while interest rates are very low, however if debt levels remain elevated when interest rates eventually rise, the risk is that households will need to dedicate more of their income towards servicing their debt and less towards spending,” he said.
“The recovery trend is still very early and there is the potential for the pace of growth to slow as advertised stock levels rise in line with spring, but no doubt the RBA will be keeping a close eye on housing market conditions.
“If the recent acceleration in housing value growth is sustained over coming months, we could potentially see additional credit policy levers pulled, aimed at keeping a lid on household debt.
“Limiting lending to borrowers on high debt to income ratios could be one option, or introducing hard limits on high LVR lending could be another mechanism that would reduce the risk of a further build up in household debt whilst at the same time allow borrowers to access housing credit and take advantage such low interest rates."
A house refers to a building or property used as living quarters or an individual’s place of permanent or temporary residence.