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Australian buyers hit hard by third rate rise - 21 November 2006

The Reserve Bank of Australia's decision to raise interest rates for the third time this year will hit homebuyers hard, says the Real Estate Institute of Australia...

The Real Estate Institute of Australia (REIA) acknowledges that the decision by the Reserve Bank of Australia (RBA) to raise interest rates for the third time this year was not taken lightly.  Indeed, with inflation in Australia still increasing, and businesses and consumers still showing a healthy appetite for borrowing, raising rates must have seemed a necessary step. 

But REIA points out that homebuyers, particularly first homebuyers, will be paying a tough price for this rate rise in the months ahead.  The rate rise will be another deterrent for investors, thereby retarding the supply of rental accommodation and continuing the significant upward pressure on rents, says REIA President Tony Brasier.

REIA highlights that:

  • An extra $113 has been added to average monthly loan repayments this year
  • More than $33,000 has been added to the interest payments a borrower will make over the life of the loan
  • Borrowing $230,000 now means paying back around $530,000

This is based on the June quarter 2006 average Australian home loan of $229,316.  The Australian median house price was $407,266 for the June quarter.

Younger homebuyers hit hard

Brasier predicts that the interest rate rise will be tough on younger homebuyers. "First home buyers and young people in particular are going to be thinking long and hard before buying in an interest rate environment where there has been three upward movements in six months," he said.  "They are already cautious about buying, with their share of dwellings financed well down on long-term averages."

Brasier continued: "Staying in the rental market is not going to be a simple solution for young people either: with vacancy rates already at extremely low levels, down to 1.5% in some cities, there simply are not enough homes to rent, and what homes are available are attracting significantly higher rents."

Brasier added: "This third interest rate rise will hit the housing market hard with the likelihood that there will be further upward pressure on rents.  That’s not good news for home buyers, renters, or for the economy."

 

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