Rates still low despite today's rise

Posted on 3/11/2009  

The Reserve Bank has increased the cash interest rate 25 basis points to 3.5% at today’s meeting. Despite the second consecutive monthly rise, the official interest rate is still only half what it was a little over a year ago. 

Catherine Lezer of Smartline Personal Mortgage Advisers says it’s is important to remember that the 3% cash rate (before the rise in October) was the RBA’s "emergency" position.  

Other reaction to the interest rate rise includes the following:-  

PRDnationwide managing director Jim Midgley says the Reserve Bank’s decision to lift the cash rate by 25 basis points spells tougher times for those battling mortgage stress - but could be a boon for property investors. He says the rise will boost the confidence of investors who had retreated during the downturn.

“Investors who have been waiting for the first-home buyer activity to drop are now looking to pounce since interest rates started to go up,” he says. “Investor activity has risen across the board according to feedback from our 130 offices across the country.” 

He says the relatively small interest rate rise will have minimal impact on house prices. “The real estate market has come through the downturn quite well because of an under supply of real estate in Australia,” he says. “This rise will most likely affect those who have already bought and did not factor in increases and are suffering mortgage stress.” 

Real Estate Buyer’s Agents Association of Australia president Byron Rose says it’s still a good time to buy property with interest rates on mortgages remaining low in historical terms.

“Provided buyers are not caught in negative equity and have a decent deposit, now is still a good time to buy, particularly if you’re trading up,” says Rose. “In many parts of Australia we’re getting to the stage where mortgage repayments are cheaper than renting.

Even with today’s rise, interest rates are still less than half of what they were at the 2008 high of 7.25%. If you’ve got the money, there are some good deals to be done.   

The CEO of the Real Estate Institute of South Australia (REISA) Greg Troughton says the strengthening property market should not be hindered by the latest rate rise - but it won’t go undetected by many borrowers. 

“The market continues to strengthen and many pockets showed promising growth throughout the September quarter,” he says. “However, two consecutive interest rate increases is sure to put added pressure on households who are still combating the lingering effects of the global downturn.” 


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