Hundreds of thousands of Australians who entered the property market for the first time or took on more debt to upsize or renovate over the past three years could be forgiven for being angry at the Reserve Bank right now.After being told that interest rates would remain at record low levels until early-2024, they now find – after– rates on a sharp upward trajectory that will add thousands and tens of thousands to their annual mortgage repayments.
But between July and December 2023, most of those borrowers – or more than $130 billion in loans – will have to refinance. According to the RBA, a 2 percentage point increase in the cash rate would lift repayments for half of that group by up to 20 per cent; for some others, it would be 30 per cent. Today, higher house prices and much larger mortgages – sometimes six times more than household income – mean that “for any given mortgage rate, the share of income taken up by mortgage payments is much, much higher”.
to an 11 per cent decline for Sydney house prices this year, a 10 per cent fall for Melbourne, and an 18 per cent slump in both cities by the end of 2023. The next sustained decline came as the pandemic hit in 2020, with a 2.8 per cent fall in capital city housing values between April and September. Yet, at its board meeting in May, almost 20 months ahead of past guidance, the RBA decided to increase the record low 0.1 per cent cash rate to 0.35 per cent in what Lowe described as a “business as usual” rate rise.
Beck, who was developing the A-grade Gateway office building on the southern edge of the Melbourne CBD in the mid-80s, got caught out by the rate moves after he fixed the rate on debt taken out for the 312 St Kilda Road project.“I locked in an interest rate at 14 per cent,” he recalls. “The bloody thing came back to about 8 per cent within 12 months. It was costing me an extra $500,000 a year in interest,” which he had to wear for two to three years.
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