Interest Rates, where will they stop?
 

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.

Re: Interest Rates, where will they stop?
 

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

Re: Interest Rates, where will they stop?
 

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. :thumbup:

Re: Interest Rates, where will they stop?
 

4.25% is VERY low! :rofl::rofl:

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.

Re: Interest Rates, where will they stop?
 

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).

Re: Interest Rates, where will they stop?
 

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.

Re: Interest Rates, where will they stop?
 

8%

Re: Interest Rates, where will they stop?
 

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.

Re: Interest Rates, where will they stop?
 

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.

Re: Interest Rates, where will they stop?
 

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.

Re: Interest Rates, where will they stop?
 

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. :blink:

Re: Interest Rates, where will they stop?
 

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.:confused: 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:beer:
Steve

Re: Interest Rates, where will they stop?
 

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.

Re: Interest Rates, where will they stop?
 

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.

Re: Interest Rates, where will they stop?
 

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!

Re: Interest Rates, where will they stop?
 

You were better off then with 16.5%, than today with eg 7.5% because the house prices were soooooo much lower (make your own calculations). I profitted at that time because I had money in Australia in savings accounts. On top of it, the Aus$ floated in 1983 which was in my favour too when exchanging to another currency.

Re: Interest Rates, where will they stop?
 

Agreed 4.25% is low but the borrowers dont get that rate ! We're paying about 7 % now....not so low !!!!
If really bugs me when all the 'experts' say that borrowing is at an all time low.....we dont get the friggin low rate after the banks put their whack on top :thumbdown: and just to think how low the interest would be now on my old UK mortgage *crying smilie*

Re: Interest Rates, where will they stop?
 

Absolutely Evelin!! Spot on!!!

Today's young home buyers are up to their necks in it as they've been conditioned into thinking that buying a house is a fast track to riches. :blink::lol: Any small rate rise is a killer and the banks are to blame for high mulitples of income lending but I'm sure the taxpayer will bail the banks out if it all goes tits up.

Re: Interest Rates, where will they stop?
 

Absolutely, it will be the sensible bailing out the foolish, just like in the UK.

Re: Interest Rates, where will they stop?
 

Lower interest rates = more money chasing the same quantity of real estate = higher prices = less "affordability".

Higher interest rates = the reverse.

Re: Interest Rates, where will they stop?
 

April 1990 the Interest Rate was 16.5%
Assume 16.5% on the $74,303 average First Home Mortgage, and the interest paid in the year would be $1,021.67 or 35.4% of the average wage.


April 2010 the Interest rate is 6.58%,
Assume 6.58% on the $277,854 average First Home Mortgage, and the interest paid in the year would be $1,523.57 or 26.1% of the average wage.

Re: Interest Rates, where will they stop?
 

I think the big problem there is that the average wage has gone up, but the median wage has gone down (relatively speaking). ;)

(must be all those fat bankers)

Re: Interest Rates, where will they stop?
 

You beat me too it. I was just going to say that salaries were considerably lower too. Also mortgage conditions were more stringent, we had to put a minimum deposit of 10% which took us a long time to save.

We bought our first house on my husband's salary alone as I was a Masters student, (no grant, paying my own fees) so we had additional expenses of that too. I seem to remember that in 1990 our mortgage was £600 pcm and my husband earnt about £16K pa. We had very, very little left over. The house was a reno and we lived without central heating or double glazing until the following year when I started work. In fact it was so cold in the house that I remember the milk freezing when it was left out overnight.

I wouldn't say that we had it easy and we certainly didn't expect a perfect house full of new furniture. We spent £300 on second hand furniture to furnish the whole house and lived with that until we could afford to replace it. Which was about 10 years before we had all our own stuff!

At the same time many of our friends were suffering with negative equity and job losses - a double whammy. It wasn't quite cardboard box in the road time but it was a very tough time and I don't think people who didn't live through it can appreciate it. Websites full of house crash rhetoric are written by 20 year olds with no life experience who want a cheap house as a God given right.

This said, I know we had it easy compared to our parents and grandparents. Hell my grandparents were refugees from Nazi Germany and were never able to afford their own home in the UK.

Re: Interest Rates, where will they stop?
 

Of the handful of home loans we've looked at they've asked for 20% deposit. :huh:

Re: Interest Rates, where will they stop?
 

I recall the day when we were able to buy carpet for our first house. It was a momentous occasion :thumbup: New furniture didn't come till my third house.

I wish I could recall the exact cost of the repayments and my wage, but the figures escape me. I do recall the deposit 20%.

I almost remembered my wage... I sued someone at that time, and got the equivalent of 50% of my annual salary. I can almost remember the figure... but not quite.. maybe it will come to me later.

Re: Interest Rates, where will they stop?
 

Looks like rates may heading towards 5.5% sooner rather than later, with bank rates pushing 8%.

Re: Interest Rates, where will they stop?
 

Errrm, how about Steve Keen, professor of economics at the University of Western Sydney, I'd put him at about 55 years old and he's looking at a 40% fall in real terms, over several years.

http://www.debtdeflation.com/blogs/

So are you saying The Economist, Demographia and the IMF are run by a load of 20 year olds with no clue? :blink: These economic entities are all saying Aussie house prices are 30-50% overpriced. Do some proper research.

I think you have it the wrong way round. It's the 20 year olds who believe that getting the biggest mortage and buying the most expensive house they can afford leads them to a life of riches as they have only experienced boom times and easy lending practices by the banks. It's the older ones with life experiences will tell you that current house price rises are unsustainable unless wage inflation catches up.

Re: Interest Rates, where will they stop?
 

25 year loan at 17% interest rate and payments of £600 pcm would of meant you had a loan of about $40K back then. This would of been 2.5 times your husband's salary of $16K. (I'm persuming that the £600 a month repayments were at a time of high interest rates as you went on to explain how tough everyone was having it back then, so I can only asume 17%)

Was $16K the average wage back then? If it was, then 2.5 times the average wage in Aus now would be $65K giving you an equivilent mortgage today of $162K. Only $162K!!!!

Unfortunately, First Home Buyers are needing almost double that amount of $162K to get a home thesedays, so I can't see the 'how it was so much harder back then' story washes? :confused::confused::confused:

Re: Interest Rates, where will they stop?
 

Thanks to cheap labour in China and Asia and evolving technology, goods are ALL relatively cheaper than even 10 years ago.

My Dad had to save up a whole weeks wage to buy me a bike back in the 70's, now you can buy one in Kmart for a couple of hours of labour.

We were the only one's in our street with wall to wall carpeting at one stage, now people change their carpets every few years because they can and it's cheap.

People have more stuff because it's cheaper. If it gets even cheaper then we'll have even more stuff. If Iphones get down to $20 a piece then perhaps I'll even get one.

Re: Interest Rates, where will they stop?
 

No it was 16k pounds not dollars... so whatever the exchange rate was in 1990 would give you the salary in dollars. Houses were MUCH cheaper in Aus than the UK in 1990. By just doubling the wage to get an approximate figure of $32K.

The house was a tiny terrace with no front garden (right onto the road) and a back yard big enough for the bins. It had an outside toilet and we put a bathroom in. Don't tell me this sort of house would be expensive in Aus.. it's the cheapest thing you get and we struggled. My husband had been working for a few years to get a salary of 16K and it was above average as he is a graduate and yet we struggled. I am not saying youngsters don't struggle, just that we struggled too, you can't look at house prices being less and say oh that's cheap because it's all relative to the conditions at the time. My parents paid £300 - about $600 dollars for their house in 1960. That's laughable now but they struggled to pay their mortgage.

Re: Interest Rates, where will they stop?
 

So now you're saying that yes things are cheaper to buy now. Don't you see what I was saying about things being relative to the conditions of the time?

There were many people MUCH worse off than us, we were middle class graduates. After I got my masters I worked in public housing with truly desperate people and I know first hand, that we were very fortunate. Many of those people I worked with have never been able to buy a house. In fact, I worked with many families who lost their homes and all their life savings due to those 17% interest rates. I would imagine many of them faced very difficult lives after that and possibly never recovered.

Re: Interest Rates, where will they stop?
 

Most houses in Australia have toilets (I thought most housing in the UK did too :confused:) so it's hard to compare.

Sounds like your old house was like this one...

£37,500 3 bedroom terraced house for sale

Question is could you find a 3 bedroom unit in Australia for say $80,000 for comparison??

Re: Interest Rates, where will they stop?
 

Yes, i know £16K salary, £40K mortgage. Sterling

I'm not doing exchange rates. The fact that you had to pay 2.5 times your annual salary for a mortgage is relevent. If you were paid in french francs, us dollars or whatever, it doesn't matter, it's ONLY 2.5 TIMES YOUR ANNUAL SALARY. It is affordable to pay back the loan. People are getting 5+ times their salary these days to buy the most basic dwelling. Do you not understand or summat?

2.5 times an average salary in Aus gives you a borrowing capacity of $162K. Even ABCDiamond would struggle to find anything liveable within a couple hours of commute to a city for that price.

Re: Interest Rates, where will they stop?
 

Yes that sort of house. Although ours cost £52000.00 in 1990 - about $104000.00. They sell for about £180000.00 now - so about $350000.00 There are plenty of small houses for sale for that much. Imagine having to pay 17% on your mortgage on a $350K house....

We were unlucky in that we lived in an expensive city but it was about half the price as London and we lived in a very cheap area...

Re: Interest Rates, where will they stop?
 

Well that house I listed is local to where I lived in the UK and many good houses there are currently going for less than $100k.

Are you sure those houses are still selling for £180k? That kind of money would by a nice detached house on a good lot where I came from. ;)

Are we saying that say Brisbane or Melbourne is more like London than Manchester, Liverpool or Glasgow?

(and are people in Australia generally earning the equivalent of London wages? ;))

Re: Interest Rates, where will they stop?
 

You are a graduate? :blink:

The sad fact today is that many educated graduates can't even afford any kind of housing in Australia, so even an education doesn't give you the key or right to a basic home these days. We've gone backwards.

In fact, I'm going to tell my kids to forget about education and just buy the biggest house they can as soon as possible and with prices rising 10%+ every year they won't even have to work in a few years time, they'll be able to redraw on the ever increasing equity and live a life of luxury without even sitting an exam. See, it's so easy isn't it and house prices are going to keep on going up and up until the next wave of first home buyers are going to have to stump up 20 times their annual salary and pay 99.9% of their income on mortages. :lol:

Re: Interest Rates, where will they stop?
 

Do you know what even scarier, I reckon if rates go up to just 10% here, people are going to lose their homes because we have higher debt levels now. A 10% rate scenario here is so much more likely than 17% dontcha think?

Re: Interest Rates, where will they stop?
 

Jeez, how is anyone from Wigan going to afford to come to Australia these days if they are relying on equity from house there.

Re: Interest Rates, where will they stop?
 

I'm sorry we seem to be winding each other. I do understand that it's hard to get a mortgage on a reasonable salary multiple as property is expensive. I am trying to say that even in the days when it was possible to get a house for 2.5 x salary (and it was usually 3 x salary even in those days) it wasn't an easy ride and the conditions of the time were hard in a different way. Youngsters have ALWAYS had it tough but recently there have been groups deliberately trying to sabotage the housing market and misleading people into thinking that it was a land of milk and honey when houses were cheaper.

I just dread to think what would happen to people who buy a house at 5 times salary and then the rates go up to a level they can't repay. :blink:

As I stated in one of my previous posts, I worked with some of the people who suffered in the housing crash of the 90s. That's what colours my view. I hate these these groups who try to create these conditions again. Putting homeless families who have lost their homes and every penny they have saved into hostels or emergency accommodation is is something which will stay with me forever.

Personally for housing prices to come down in Australia would suit us well as we are currently in rented. However I wouldn't wish a housing crash on my worst enemy.

Re: Interest Rates, where will they stop?
 

Some pod on the radio this morning said that after the rate rise to 4%, 40% of FHBs in the previous 18 months were in financial difficulty and were strugglying to make payments. :eek: