Well, I think we can finally assume that it's official; interest rates are on the rise. Last Tuesday saw the Reserve Bank lift its cash rate by 0.25 of a percentage point, taking it from 4 to 4.25 per cent. This was the fifth time the Bank increased rates in a seven month period and they show no sign of slowing down.
One of the most important things to keep in mind is that rising interest rates usually indicate that an economy is strengthening, which means good news for jobs, incomes and business.
Having said this, rising interest rates can still be a huge source of concern for homeowners, especially those with mortgages. However we must still be mindful that rates remain historically low and shouldn't be a deterrent to owning property. As the Treasurer, Wayne Swan, said last Wednesday (7 April), although repayments on the average $300,000 mortgage will now be higher, these payments are still more than $500 a month less than what they were in late 2008 before the Reserve Bank started cutting rates in response to the Global Financial Crisis.
While people may have less money in their pockets now, Century 21 is predicting a steady rise in the value of homes over 2010. Indeed, this rise is one of the main reasons the RBA is lifting rates.
The Governor of the Reserve Bank, Glenn Stevens, has stated that the housing market is still characterized by considerable buoyancy, with house prices continuing to increase. If property buyers take the time to research the market, seek good independent advice and appreciate the forces at play currently, they may realize that the detrimental effect rate rises will have on income may not outweigh the capital growth they expect to benefit from in their homes.
Having said all of this, it is very important for mortgage holders to consider the steps they can take to deal with last week's interest rate rise and to plan for almost certain future increases. Homeowners should consider 'budgeting for the future'- a process that should take into account different interest rate increases. Try to make changes to your spending and save more now so that you are financially prepared for the rises if and when they do come. Even the smallest of changes can reduce the life of your mortgage and the interest you pay. For example, paying an extra $100 per month above your minimum repayment, or moving from monthly to fortnightly repayments, can drastically reduce your principal amount and get you to full home ownership sooner!
With house prices still on the increase, my colleagues and I at Century 21 do not expect demand for property purchases to falter too much with this rate increase announcement. If you are considering selling your own property, are looking to purchase, or just need some advice, feel free to drop you're your local Century 21 office for some friendly independent advice.