Borrowers can't afford rate rise

MOST Australians remain upbeat about the nation's economic future despite many fearing they are just one interest rate rise away from financial ruin.

Borrowers can't afford rate rise

MOST Australians remain upbeat about the nation's economic future despite many fearing they are just one interest rate rise away from financial ruin.

Interest rates remain the chief financial concern for many Australians, with a consumer sentiment survey showing 92 per cent think rates will rise again early next year, and almost a quarter of respondents with home loans saying they could not afford another hike.

Of the survey respondents with a mortgage, 21 per cent said they could not afford any rate rise, 22 per cent could afford a 0.25 per cent increase and 21 per cent could afford a 0.5 per cent rise.

Seven per cent said they could afford a 0.75 per cent increase in the official cash rate while 28 per cent said than could afford a one per cent rise.

Mortgage Choice national manager of corporate affairs Warren  O'Rourke said it was not surprising that interest rates ranked as the chief concern amongst consumers.

However, the prospect of further rate rises in the near future has failed to dampen the spirits of most consumers, with the survey also showing sentiment towards the economy remains overwhelmingly positive.

The annual consumer sentiment survey, conducted by Mortgage Choice, found 83 per cent of people were confident that the Australian economy would remain strong in 2008.

The result was an improvement on last year when only 69 per cent of people were confident about the nation's economic prospects.

Mr O'Rourke said the survey showed there had been a significant boost in people's perception of the country's financial situation.

And this was despite ructions in financial markets stemming from fallout from the US sub-prime mortgage meltdown and the global credit crunch, as well as concern over rising petrol prices and inflation.

"Let's face it, this credit crunch has been around for a while now and I don't think Australia has seen any notable change in demand ... I don't think people are too concerned with it,'' Mr O'Rourke said.

"All the hysteria that was around a few months ago has died down,'' he said.

"There are obviously problems in the US but they're not necessarily manifesting themselves in Australia in a way that would be considered serious or as giving concern to the average borrower.''

Mr O'Rourke said a number of interest rate rises this year and the prospect of further hikes in 2008 had also failed to sway consumer's from their positive outlook.

"There's been two rate rises during the course of this year but that doesn't seem to have affected their confidence,'' he said.

"They do expect there is going to be a rate rise in the first half of next year, but again, that hasn't affected their confidence.''

Nonetheless, the subject of interest rates remains at the forefront of people's minds with 45 per cent of survey respondents saying it was what they would be most concerned about financially in 2008.

"There's been enough speculation from various economists suggesting where rates are going and I think that's been reflected in the survey results,'' he said.

Most economists believe the Reserve Bank of Austraila will raise rates in February, taking the official cash rate to seven per cent, while some have forecast at least two rate hikes in 2008.