All experts surveyed by a rates comparison website have predicted that interest rates will stay on hold tomorrow.
In a survey conducted by Finder.com.au, 18 expert respondents believed the Reserve Bank of Australia (RBA) will keep the overnight cash rate at its record low of 2.50 for July.
Of the respondents, 11 predicted that rates will rise in the next 12 months. Six experts – from Commonwealth Bank, Commsec, AMP, HSBC, St George Bank and Urbis – stated that interest rates could begin picking up before the end of the year.
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The cash rate will stay on hold for this year, rising in the second half of next year, according to experts from Heritage Bank, RAMS, AAP and Westpac.
With almost all predicting an eventual rise, treasurer of ING Direct Michael Wills was the only respondent who argued that the cash rate could either increase or decrease at its next move, believing there were convincing cases for each scenario.
Analysis and research firm BIS Shrapnel, who did not participate in the survey, expect rates to stay on hold until an increase in 2015, anticipating a subsequent decrease in demand for off the plan properties.
“The expected tightening in interest rate policy is forecast to have an impact on off-the-plan purchasers,” wrote BIS Shrapnel in a statement last month.
“The first rises in interest rates are anticipated around the middle of 2015, with interest rates expected to reach their peak towards the end of 2016, thereby dampening demand over the subsequent years, and causing both new apartment approvals to decline and prices to weaken.”
According to Michelle Hutchison, Money Expert at Finder, borrowers must begin planning for a future rate rise.
“It looks like we have well and truly hit the bottom of the cash rate cycle and interest rates are set to climb within the next 12 months, with only one of the 18 experts in our survey (ING Direct) was unsure of which direction the next rate move will be,” said Hutchison.
“According to the Australian Bureau of Statistics, over 70% of households have some form of debt such as a home loan, credit card, personal or business loans or unpaid bills. So regardless of whether the next cash rate rise will be this year or next, it’s likely that most households across Australia will be hit hard and need to start planning ahead before it’s too late.”
Using ABS Housing Finance data, the comparison website has found Australians are increasing their debt levels in the housing market. The average home loan size has increased by 64% since 2004 to $314,000. The average size of fixed home loans has increased by 97% over the last decade, to $327,000.
For first home buyers, the average loan size has risen by 50% to $301,000.
“With average home loan sizes among the highest we’ve ever seen, it’s a real concern that many borrowers will struggle with bigger interest rates,” said Hutchison.
“If the cash rate reaches average levels of the past decade of about 5 percent and home loan interest rates follow to an average of about 7 percent, that would cost the average home loan of $318,000 an extra $345 per month or over $4,000 in a year.”
“Everything you can do now to pay down your debts as much as possible will reduce the impact of rising interest rates in the near future,” she said.
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