Australians should prepare for the expected interest rate hike by the Reserve Bank of Australia (RBA), according to the country’s Prime Minister Malcolm Turnbull in a report by The Australian and The New Daily.
“Monetary policy remains accommodative and will stay that way for a while yet, but it means that rates are more likely to go up than down.”
Earlier this week, the RBA warned borrowers that the “new normal” cash rate would be at 3.5 percent from 1.5 percent presently.
“What they are not saying is that they are going to increase the cash rate to 3.5 percent next month,” Turnbull explained.
A rise in interest rates would increase the financial burden of those who have purchased homes in recent years amidst the low cash rate and climbing residential prices.
“High levels of indebtedness incurred with low interest rates poses a risk, particularly when it’s built on the assumption of rising asset prices,” he warned.
Turnbull reiterated that it’s vital for people to remember that home prices can either rise or fall. Nevertheless, he believes that the country’s real estate market is being properly managed.
At present, interest rates are currently at all-time lows, while home prices have reached record highs. Following a brief slide in May and June, home price growth is rebounding on an annual basis this month, with CoreLogic estimating that values across five capital cities have increased by about nine percent.
However, a recent study by Grattan Institute revealed that nearly 20 percent of families living in the country’s fastest growing fringe are struggling to repay their housing loans.
The report noted that these households spend at least 30 percent of their income on repaying their monthly mortgage instalments. If the interest rates increase even by a few percentage points, this group would the greatest impact.
Furthermore, a research by SP Global Ratings on Tuesday (18 July) discovered that the percentage of property owners more than 30 days late in their repayments rose to 1.21 percent in April from 1.16 percent in the previous month.
This article was edited by Denise Djong.