RBA governor warns of future interest rate rises on home loans
THE nation’s top banker has sent a stern warning to Australians that interest rates will go up, and it will affect the value of their home.
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THE nation’s top banker has sent a stern warning to Australians that rates will go up and not down and the value of their home may fall.
Reserve Bank of Australia governor Philip Lowe said borrowers should prepare themselves for the next cash rate move to climb which will add more costs to their hip pocket.
In an address in Canberra on Tuesday he said eight years of the cash rate failing to increase meant many “borrowers have never experienced a rise in official interest rates.”
“Over recent times the Australian economy has been improving,’’ he said.
“This is good news.
“If we continue on this current improving track as we expect we will it is likely that the next move in official interest will be up, not down.”
He said his advice to borrowers was to “make sure” they are in a good financial position to cope when there is a lift to the cash.
The RBA has kept the cash rate on hold at 1.5 per cent since August 2016.
House prices have remained subdued in Sydney and Melbourne, while the nation’s jobless rate fell to a six-year low of 5.3 per cent in July.
MORE: Are home loan offset accounts worth it?
MORE: Lenders move rates despite cash rate being on hold
Mr Lowe warned borrowers who have bought properties at the top of the market that they should not assume their value of their home will continue to climb in years to come.
“Most of our cities have seen falls in housing prices at some point over the past decade,’’ he said.
“While I would expect housing prices to trend higher over time as our incomes increase there is no guarantee that your home will be worth more tomorrow than it is today. So plan accordingly.”
Mr Lowe said borrowers should have a decent financial buffer in place to prepare for higher rates.
He also warned borrowers to holding back from the temptation to sign up to as much credit as a lender was willing to offer them.
“It rarely makes sense to take all the credit that you are offered whether on a credit card or when you apply for a loan,” Mr Lowe said.
“Many Australians will mortgages find the best way of building buffers is to put any spare money into their offset account.”
Many variable rate home loan interest rates remain under four per cent but some lenders are still increasing rates despite the cash rate not moving.
Non-bank lender CUA pushed up interest rates by 0.25 percentage points across several variable home loan rates for owner occupiers and investors on Tuesday.
Canstar’s group executive of financial services Steve Mickenbecker said there has been many variable rate hikes “in the order of 0.08 per cent to 0.1 per cent.”
“Many lenders chasing market share in high quality lending, have offered lower rates for new lending, but not for existing loans,” he said.
Originally published as RBA governor warns of future interest rate rises on home loans