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The cost of buying swells as rates rise

By webmaster 25 November 2010 | 1 minute read

A modest decline in house prices has seen affordability improve slightly over the September quarter but housing remains far less affordable than it was 12 months ago, largely as a result of higher mortgage rates, and there’s little sign of any substantial relief coming in the short term.

According to the Housing Industry Association (HIA) - Commonwealth Bank Housing Affordability Report released today, Australian housing affordability improved by 3.6 per cent over the three months to September.

But before any aspiring buyers get too excited, according to HIA chief economist Harley Dale, November’s rate hike is likely to see a return to declining affordability.

“A further rate hike in November will see affordability drop in the December quarter, an outcome obviously not aided by trading banks adding fuel to the mortgage rate fire,” he says.

In fact, affordability has declined by 18.3 per cent in the past 12 months, a look at the past year’s index results reveals.


The average household now requires $3,006 per month to service a mortgage on the median priced dwelling, compared to $2,349 one year ago.

Furthermore, according to economic analysts, home buyers can expect home loan rates to continue upwards into the New Year.

The upside however is that home loan rates look set to stabilise for at least the next month or two.

Shane Oliver, chief economist, says he expects the Reserve Bank to leave the official cash rate on hold until February 2011.

“While we don’t see the next rate hike coming until February at the earliest, in a year’s time the cash rate is likely to have increased to around 5.5 per cent, which is likely to prove to be the peak for this cycle.”

For aspiring property buyers looking to scale the property ladder, the forecast for rising rates means it’s important to account for higher borrowing costs in the year ahead at least. If Dr Oliver’s forecast is anything to go by, home buyers can anticipate home loan rates to be close to one per cent higher within a year, and that’s without taking any out-of-cycle bank rate rises into the equation.

When considering your financing options, be sure to include a buffer for higher borrowing costs of a good two per cent, and if you know this is going to be too difficult, it might just be worth considering a lower price point.



Rates refer to a fixed price or an amount charged by sellers or providers for their goods and services.

The cost of buying swells as rates rise
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