znaylor1974

The Age
8th November 2007
http://www.theage.com.au/articles/20...329319382.html


HOME mortgage rates are heading towards 9 per cent - and possibly higher - after a major bank warned yesterday it may lift interest charges by more than the official amount announced by the Reserve Bank.

The warning came as Prime Minister John Howard took the rare step of telling home buyers he was sorry over the latest official rate rise - the sixth since 2004 and the first ever announced during a federal election campaign.

The latest rise means the cost of servicing a typical home mortgage (about $250,000) will pass $2000 a month for the first time.

Announcing the rise, the Reserve Bank took a tacit swipe at the big-spending promises of both major parties, warning that national spending needed to be reined in - and signalling it was likely to raise rates again soon.

It is the first time Reserve governor Glenn Stevens has publicly stated that the economy is experiencing excessive growth in demand. The warning came in a campaign in which both sides have announced more than $40 billion of tax cuts and new spending promises.

Yesterday's quarter of a percentage point rise in the Reserve cash rate, to 6.75 per cent, could be passed on to borrowers within days, taking the banks' standard variable mortgage rate to 8.57 per cent, and adding about $42 to the monthly costs of servicing a typical mortgage.

Experts said higher rates could also worsen the housing shortage, pushing up rents.

Market economists warned that a further rate rise was a near certainty, and commercial banks are expected to lift their margins on mortgages once the election campaign is over.

This could take home rates to 9 per cent by February - a level not seen in more than 11 years, and almost two percentage points higher than in 2004 when Mr Howard was re-elected with a campaign pledge of "keeping interest rates low".

Yesterday, in a rare statement of contrition, Mr Howard said: "I would say to the borrowers of Australia who are affected by this change that I am sorry about that and I regret the additional burden that will be put upon them as a result."

But he offered no retraction on old pledges as the Coalition launched a new TV commercial claiming, as in 2004, that rates would be higher under Labor.

Labor rushed out its own new TV ad, savaging Mr Howard over his broken promises on rates, while Labor leader Kevin Rudd declared the Prime Minister could not be trusted on rates, nor on what he said about them.

Dismissing yesterday's apology by Mr Howard, Mr Rudd said he should accept full responsibility for his pledge to keep rates at record lows, and blasted as absurd the argument that rates would be higher under Labor.

NedKelly

But if Rudd gets in rates will be higher under labor so Howard is not lying.

tabby

ditto

Mairead

Jeez and I'm complaining about our rates in Ireland !!!

kevinbloomfield

Oh dear, someone else who thinks interest rates are something to do with politics. Do some research and you'll find interest rates rise and fall on a global basis and as the same political party doesn't rule the world (the yanks would love to though) it's clearly not a political issue.

Aussies love to spout about the labor party and high interest rates but just look at historical facts and you'll find that the interest rates were high everywhere when the last labor government were in charge.

themerlin

Although it's interesting that the USA is going the opposite way, but I guess it's becuase there economy is buggered/

Amazulu

Their economy is okay - not booming but doing okay. The reason they are dropping rates is to try and stop the mortgage crisis dragging the economy into recession. The weak USD is going to benefit their economy.

Whingin Pom

So how do the rates rise affect the Ozzy market, is it as fickle as the UK or is it more robust.

I guess what I'm looking for is someone to say that house prices would drop or at least slow down.

Amazulu

Aussie economy is robust at the moment - resources boom has seen to that. The boom states of WA and Qld are having a positive effect on NSW and Vic. Interest rate rise is going to dampen the market in WA but I think will have little effect on Qld market. For NSW it's not good news. Further rises are expected and if there are more then I think it will affect the whole country.

Nu-Shooz

I just don't understand why they have to keep going up. Our wages don't go up, but food, houses etc go up and up. What are the gov trying to do to us all

worzel

Maybe your wages aren't going up but in the mining industry they are sky rocketing and over east house prices are picking up again. So in general, there is more money in people's pockets and they are spending it. Hence the need to raise interest rates to make them think twice.

That isn't much comfort if you are not seeing the wage rises / house equity growth yourself though.

One thing I can't work out - if interest rates rise the banks charge you more but pay more to the bank of Australia or whatever it is called. But do they make more money and if so what do they do with it / who makes from it in the end? Wouldn't meddling with tax rates somehow at least deliver the cash for the government to save for a rainy day.

Amazulu

It's not the gov, it's the reserve bank.
Think about it, the gov wants to be re-elected, so if they controllled IRs, they would not be going up!

asprilla

http://en.wikipedia.org/wiki/Monetary_policy

themerlin

Nah it will push inflation though the room because they import so much stuff.

NedKelly

If you believe Kevin Rudd then Howard is responsible for putting interest rates up, global warming, petrol & oil prices, and the price of bananas.