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May 8, 2010

Interest Rates

Interest rates announcements are always eagerly anticipated and frequently a hot topic for the media and property owners in Australia.

The Reserve Bank of Australia’s meeting in May announced the 3rd rate rise in as many months bringing the Cash Rate to 4.5%.  While it has the ability to put pressure on particular sections of the demographic, I feel for Australia as a whole it is a good sign that normality and consumer confidence is on its way back, and that the doom and gloom of recession has now passed.  I am certainly feeling rather lucky that I took the advice to lock in my loan a number of months ago now.

The average mortgage payment is now $100~ a week more than it was some months ago, which in itself is manageable for most families, but when combined with the increase in living expenses such as food and fuel, really lay the pressure on.  There has always been an emphasis by the RBA to make gradual increases, but the scenario we are in at the moment whereby, we were at historically low rates, then being hit by 3 consecutive rises doesn’t lend itself to the that gradual change ideology.  Aussie Home Loans top shot John Symonds believes this will almost certainly be the direct reason for borrowers defaulting on their loan contracts.

There is some light at the end of the interest rate tunnel, with many economists pointing to the fact that interest rates are at their 10 year average, which brings hope that things may settle, and the RBA might switch on the cruise control for the coming months.

Here is an interesting video regarding the RBA role and fiscal policy.

As an interested (excuse the pun) member of the sector, I will go out on a limb and say that I think its highly unlikely that we will see any further rise before November 2010, and that we may see auction clearance rates / conveyancing completion increase and lending requirements ease a fraction as a result.

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