Monday, 13 April 2015 00:00

Good times for property buyers won't last

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'Good times for property buyers won't last': Experts warn the era of low interest rates is OVER... and the average mortgage rate could rise to 7 per cent in just two years

 

  • Experts predict the official interest rate will start rising in June next year
  • Rates will continue to climb until they hit a 'new normal' level of 4 percent in two to three years, according to economists
  • This would mean the rates for consumers would be almost 7 per cent
  • A household with a $300,000 mortgage would pay an extra $3504 per year
  • Home buyers should be careful about their borrowing levels because the era of low interest rates is coming to an end

Property buyers have been warned not to get used to low interest rates with economists tipping the cash rate will start rising from next year.

A survey conducted by comparison website Finder.com.au found that experts predict the official cash rate will start rising in June next year, and will continue to climb until it hits a 'new normal' level of 4 percent in two to three years.
The majority of respondents (46 per cent) predicted the next rate rise would occur in the third quarter of 2015.

About one in five (21 per cent) said rates would begin rising in the first quarter of next year and 18 per cent said it would be in the second quarter. Finder spokeswoman Michelle Hutchison said home buyers needed to be careful about their borrowing levels because the era of low interest rates was coming to an end.

'The good times for property buyers are not expected to last much longer,' Ms Hutchison said.

This is based on a 5.43 percent average standard variable home loan rate and a $1690 monthly repayment rising to a rate of 6.93 per cent and a monthly repayment of $1982. All 28 experts Finder surveyed, including those from the big four banks, expect the official cash rate to remain at 2.5 percent when the Reserve Bank meets next Tuesday.

Economists also predicted they would remain stable in the near future. Survey respondent Shane Oliver, chief economist at AMP, said recent commentary from the RBA has indicated that a period of stability in rates remains prudent.

'While housing related indicators are strong, providing a reason not to cut rates further, the rest of the economy is sub-par,' he said.

'Uncertainty remains high regarding how quickly the mining investment boom will unwind, inflation is benign and the Australian dollar remains too high – all of which suggests it's premature to start raising rates.' Garry Shilson-Josling, from AAP, said: 'The RBA will leave the cash rate at 2.5 percent this month, sure as eggs.

'It's the same old story – the housing market is still too hot to allow any serious thought of a rate cut, but the transition away from mining is too slow to bring rate rises back onto the agenda.'
The official cash rate has remained steady at 2.5 percent since August last year.



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