Home loan customers urged to pay down debt as quickly as possible

HOME loan customers should be paying down their debt as fast as possible, with experts warning millions of debt-laden Australians are yet to experience rate rises.

MILLIONS of debt-laden Australian home loan customers have never experienced a cash rate rise which could be setting them up for failure, experts warn.

The Reserve Bank of Australia has not lifted the cash rate in eight years — the last time it rose was in November 2010 — which means more than 2.9 million mortgage customers have only ever had cash rate drops.

Analysis by financial services firm Canstar shows of these customers 690,000 are first home buyers and many who have struggled just to get into the property market.

Canstar’s group manager of research Mitchell Watson has warned borrowers to prepare for inevitable cash rate rises which will put added pressure on their household budgets.

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Canstar’s Mitchell Watson said borrowers should always be prepared for cash rate rises.

“Borrowers have become accustomed to low interest rates and an increase in monthly home loan repayments may come as a shock,’’ he said.

“Financially not experiencing cash rate increases is a good thing and it’s only a bad thing if borrowers don’t take the time to understand what it means and prepare themselves.”

The RBA board began slashing the cash rate from 4.75 per cent in 2011 and it is now resting at 1.5 per cent.

The board meets today (Tues) and it’s expected the cash rate will stay on hold however, experts believe later this could change later this year.

AMP chief economist Shane Oliver predicts a cash rate hike in November or December.

“On the one hand business confidence and business conditions are strong and the labour market is strong ... but against that you have low wages growth and inflation running below target,’’ he said.

When borrowers are signing up to a home loan they always need to consider how they will cope when the cash rate and interest rates increase.

Many owner occupiers can get interest rate deals below the four per cent but banks including Commonwealth Bank and Westpac last week massaged many fixed-rate deals for both owner occupiers and investors.

Australian Bureau of Statistics data also shows the average non-first homebuyer loan size in Australia continues to climb — in 2010 it was $286,100 compared to $334,700 now.

The average first homebuyer loan sizes in 2010 was $314,800 compared to $406,000 now.

Liberty’s head of consumer advocacy Heidi Armstrong said lenders always factor in interest rate rises to ensure a borrower can still make repayments when rates increase

Non-bank lender Liberty’s head of consumer advocacy Heidi Armstrong warned any owner occupiers paying interest-only or minimum amounts now to rethink their strategy.

“Squirrel away every single dollar that you can and put it away for a rainy day so you have a buffer there,’’ she said.

“It’s a danger if you are paying interest-only on your owner occupier property and you are not building yourself a buffer.”

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