Get ready For Eight Rate Hikes

Hills to Hawkesbury Living Magazine - - News - By San­dra Dig­nam

Home loan lender ME Bank is “urg­ing” bor­row­ers to brace them­selves for eight rate hikes in the near fu­ture, fol­low­ing the re­lease of min­utes from this month’s RBA meet­ing. In the min­utes of the Re­serve Bank of Aus­tralia’s last meet­ing on July 4th, the RBA’s es­ti­ma­tion of the ‘neu­tral real in­ter­est rate’ is 3.5 per cent.

There­fore, the rate at which out­put growth is at po­ten­tial and in­fla­tion is sta­ble is 2% higher than the cur­rent level of 1.50 per cent.

Monetary pol­icy has been ex­pan­sion­ary for the pre­vi­ous five years or so, and the cash rate has been at its record low level of 1.50% for al­most a year. ME Bank has warned that this could soon lead to the Re­serve Bank hik­ing the cash rate.

It ar­gued that an in­crease to 3.5 per cent would boost av­er­age mort­gage rate from 5.3 per cent to more than 7 per cent, ad­ding $520 per month to a loan av­er­age of $400,000. When banks as­sess a loan ap­pli­ca­tion they use an assess­ment rate of 7.25% - 7.5% so that there is the abil­ity to pay the loan re­pay­ments when rates rise so there is a buf­fer but the de­fault rate has been very high and has only re­cently sta­bilised.

Mort­gage rates could rise much fur­ther and fast. Banks have al­ready started in­creas­ing rates be­cause of pres­sure from reg­u­la­tors es­pe­cially for in­vestor loans and In­ter­est Only loans. APRA has re­quired in­creased cap­i­tal hold­ings from all de­posit­tak­ing in­sti­tu­tions to es­tab­lish a bank­ing sys­tem that can read­ily with­stand pe­ri­ods of ad­ver­sity.

Ob­vi­ously if the banks are re­quired to hold more money, it in­creases their cost of funds and so they could com­pen­sate by in­creas­ing rates, fees and charges to all bor­row­ers in­clud­ing busi­nesses.

I would say if you haven’t re­fi­nanced re­cently then now would be a good time to lock in a fixed rate for the next 2-3 years. Who know how high it will go or how fast.

Give Every Loan a call on 96532034 to dis­cuss what you can do with your rates, or for any other fi­nance need.

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