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...
Yesterday’s decision by the Reserve Bank to keep the rates steady at 4.25 per cent has been called ‘disappointing’ for property buyers by industry experts.
Investors currently paying off loans needed the cut for further assistance and first home buyers will not have the needed encouragement to enter the market, the Real Estate Institute of Australia (REIA) claimed after the announcement.
"We know that first home buyers are starting to return to the property market but another reduction would have assisted in stimulating the lower end of the market and provided a ripple effect to those buyers trading up," said REIA president Pamela Bennett.
Ms Bennett pointed to the latest Consumer Price Index figures being well within the RBA’s target zone of two to three per cent as an indicator that rates should have been cut.
“The RBA's Governor has even indicated that he expects inflation to fall further in the next quarter or two.
“Although just one component of the solution, lower interest rates are needed to reduce the proportion of income that Australians are spending on loan repayments in an effort to improve housing affordability,” she said.
The rates were cut in both November and December in 2011 following 12 months of steady rates.
Real Estate Institute of New South Wales chief executive officer Tim McKibbin said that the general consensus had been an expected rate cut of at least 25 basis points if not more.
However, while it may have been unexpected, Mortgage Choice spokesperson Belinda Williamson said the RBA had been keeping a close watch on the economic indicators and if there are setbacks in coming months then a rate cut may still arise.
"Today's decision by the Reserve Bank to keep rates steady may come as a disappointment to many borrowers who had budgeted for a rate drop this month, but it speaks positively of our overall domestic economic position," Ms Williamson said.
“I believe a rate cut would have helped to stimulate housing and the economy generally, and I think it is still likely the central bank will cut rates this year,” said Mr McKibbin.
For variable rate borrowers who were expecting a cut, there are still steps that can be taken, Ms Williamson said.
"Reviewing their home loan and lender could unearth a product that better suits their needs and has a more attractive interest rate, fewer fees, and/or offers loan features that can help them make a larger dent in their debt.”
Borrowers who recently took out a fixed rate loan, one in five borrowers for January Mortgage Choice home loan approval data, and have locked in their interest rate can be reassured by the steady rates, she said.
"There is a strong possibility that a stable interest rate climate may also encourage buyers to enter the property market based on a degree of certainty around the direction of the economy and hence their ability to repay a loan,” she said.
There are still positive factors for those who are looking to buy, with variable and fixed rates from lenders falling recently, lower property prices and low vacancy rates with increasing rent.