coolshadows

I see the RBA moved the standard rate to 4.25% today. As a potential home buyer I'm wondering where people see rates in 1 or 2 years time?

This obviously makes an enormous difference to afford-ability with current house prices.

With the tightening up of financial regulation on a global scale, I can only see the gap growing between the RBA standard rate and the rates offered by lenders.

harrip

Only 60% of economist could predict a rise in rates today so what makes you think anyone will know where they will stop? Your guess is as good as anyones. History *may* give you some clues - http://www.rba.gov.au/statistics/cash-rate.html

ABCDiamond

Have you compared the rates over the last 10 years to see what the averages have been to give you an indication of what may happen?


1972 - 1975 rates went UP from 7% to 10.38% (up 3.38%)
1975 - 1983 rates went UP from 10.38% to 12.5% (up 2.12%)
1983 - 1996 rates went DOWN from 12.5% to 10.5% (down 2.00%)
1996 - 2007 rates went DOWN from 10.5% to 8.55% (down 1.95%)

The average mortgage interest rates during the last two government terms were:
11.94% 1983-1996
7.32% 1996-2007

What is todays average mortgage rate ? 6.58%

My guess.... another 1% over the next 2 years... Could be right, could be wrong.

Fly Away

4.25% is VERY low!

OMG we bought our first house when interest rates were 16.5%. In fact I'm sure ABC can find the stats but just in the last 5 years Australia has had interest rates of 8-10%

I do feel very sorry for people who can't afford to pay their mortgage at 4.25% but what were they thinking??? Rates are rarely this low.

coolshadows

I'd be VERY happy with that.

Just hope there's enough competition amongst lenders to keep their rates close to the standard rate (despite the possibility of higher costs).

coolshadows

Yeah, 4.25% is low, but not as low as the UK and if people are gullible to simply look at how much that can afford at the point of purchase and max that out - god help them.

I'm more concerned if the lender rates go back over 10%, as this would be a HUGE expense. I can already see the average lender rate creep up to 8% before the end of this year.

DownUnderPaddy

8%

pomtastic

That would be ace.

It's always about 'the poor home borrower', what about us savers? FFS, we supply the banks the money to lend in the first place.

Anyhow, looking forward to Today Tonight and A Current Affair where they'll not doubt do a section on hard done by battlers suffering with a piddly .25% rate rise. Boob Hoo, they'll have to give up their weekly 6 pack of pre mixed Bundy and Coke and boxes of 40 Long Beach fags.

DownUnderPaddy

http://www.loansense.com.au/historical-rates.html

Scroll down to the "Standard Variable Home Loan Interest Rates 1959 - 2010" section...

We got our loan 5 years ago when loan rates were around 7%.
We restricted ourselves to a loan on the basis that we assumed rates could go to the 11% or 12% mark (worst case).
They actually only got up to the 9%+ mark in '08 before they dropped continuously for a whole year, but there is no doubt based on past rates that between 7% to 10% is a more 'normal' loan rate to expect.

fish.01

Maybe you could look at what banks are offering for their 3 year fixed rates. I assume their actuaries price these rates higher than what they think you would have paid if you stayed on the variable rate (averaged over the 3 years) so these fixed rates give us an insight into what the banking mathematicians are thinking.

So, for example, if rate today is 5% and the 3 year fixed term is 6% then they are assuming that getting an extra 1% from you for 3 years will reap them more money than you riding the variable rate for 3 years.

Fly Away

We have always done the same - I think buying when rates were at 16.5 has prepared us for that possibility. In fact we always work out what would happen at 20% to see how bad things could be. I would never have guessed however, that rates in the UK could be as low as they are currently.

That said, many people don't have the same life experience and buy thinking rates will stay around the current figure.

manwinoname

What is noticeable is the differencial rate between the RBA's set borrowing rate, which is now 4.25% and the mortgage lenders who are likely to charging an average of 7%+
Whilst the perception is that it's still a low rate for Australia, in reality the difference is now an average of 1% greater in the lenders mark up than it was pre world financial crisis. Call me cynical if you like but that margin will now become NORMAL in order that the institutions who have survived begin to claw back any losses and eventually will be well ahead of the game, whilst average Joe blogg's mortgage takes 30 years to repay instead of 25:eek
Cheers
Steve

ABCDiamond

Don't forget though that almost anyone can get the discounted rates just by asking. eg: St George are currently advertising Variable Rate 6.26 % p.a.

Probably 6.51% next week ?

These discounted rates are becoming more the normal rate now.
One of the banks actually no longer publishes a Standard variable rate.

eugene43

Why feel sorry ? if there are those who took out a loan when rates are low & only just afford it then who is to blame? I know who I would blame nievaty.

coolshadows

Doing that on the current 'average' mortgage rate makes a huge difference:

$300,000 over 25 yrs at 7% = $488.91 / week

$300,000 over 25 yrs at 20% = $1,161.75 / week

Assume my target weekly repayment was around $490 per week, at 20% it would reduce my current $300,000 target loan down to $125,000.

BIG DIFFERENCE!