Browse Forums General Discussion 1 Aug 08, 2007 2:09 pm Rate rise will hurt homeowners, says Howard August 08, 2007 12:30pm Article from: NEWS.com.au HOMEOWNERS were dealt more mortgage pain today with the Reserve Bank of Australia (RBA) lifting interest rates to a 10-year high, amid rising inflation. Prime Minister John Howard admitted the rise would hurt homebuyers. "I am aware, and the Government is aware, that this decision will hurt some homebuyers, and we're very conscious of that," Mr Howard said. "It will have an impact on some household budgets." But Mr Howard said the rate rise would be offset by the Government's strong Budget surplus and tax cuts. Most economists expected the increase, in which interest rates rose by 25 basis points to 6.50 per cent, the highest they've been since November 1996. The rise will add about $50 to the average monthly mortgage and stretch family budgets already trying to absorb soaring living costs. Federal Opposition Leader Kevin Rudd said the interest rate rise was worrying for working families. "Working families are already struggling to make ends meet, particularly when you take into account nine interest rates on the run," he said. Mr Rudd said the rise would affect all households and home buyers, not just "some", as Mr Howard had said. "When Mr Howard says it will affect only some, it does tend to indicate to me... that he is losing touch with the reality of working families across the country." Today's increase follows months of firm economic data – including low unemployment, strong consumer spending and rising private debt – which has put upward pressure on inflation. Living costs soaring Australian families have also had to cope with rising food, fuel, housing and childcare costs over the past year. As a result, the consumer price index (CPI) rose well above economists' expectations over the June quarter. Treasurer Peter Costello said the Reserve Bank had made it clear that the rate rise was due to the economy strengthening. "The statement released by the bank made it clear that the reason why it raised the official cash rate was that domestic economic demand had signalled a pick up in the pace of growth," he said. "That is that the economy is strengthening." Today's interest rate hike comes despite a volatile global share market which has seen billions wiped off its value in the past two weeks amid rising concerns about the US sub-prime mortgage crisis and credit markets. Some market analysts believed the market jitters would be enough to persuade the RBA to keep rates on hold. Economy 'near full capacity' Grange Securities chief economist Stephen Roberts said he expected interest rates to rise as the economy was operating close to full capacity. "We're running mighty close, not to full employment, but the level of employment when inflation starts to lift. That's the issue." Mr Roberts predicted the central bank will revise up its core inflationary forecast to 2.75 per cent, for the rest of 2007, in its next monetary policy statement due on Monday. A revised forecast of 2.75 per cent would place inflation at the top of the RBA's 2 to 3 per cent comfort zone. The blame game This week, the Federal Government blamed state government debt for putting upward pressure on interest rates. But economists said strong economic growth and Treasurer Peter Costello's latest tax cuts were more likely to have fuelled inflation, paving the way for a rise. ANZ chief economist Saul Eslake said there was little connection between state government borrowing and interest rates. "It's true state governments will be borrowing money over the next four years but there's very little historical evidence between government borrowing and the cash rate," he said. "It's political propaganda. It's not economic analysis." The official cash rate has risen four times since the October 2004 federal election, when the Government ran a campaign saying interest rates would always be higher under a federal Labor government. With AAP Re: Interest Rates up .25% today... 3Aug 08, 2007 2:44 pm There is a tip there will be another one next month .... Re: Interest Rates up .25% today... 4Aug 08, 2007 6:05 pm I'm not too worried - the more rates go up, the less people can afford to buy - the more the builder will need my business
On a serious note - there won't be any change to our house plans or lifestyle with any of this. We've gone in with our eyes wide open and made sure we could afford the cost + a 10% cost overrun (extra $100k) up to interest rates of 9%. Did anyone read the article by Ross Gittins in the SMH in the last week? He explained that basically we've done this to ourselves. When the economy hit a prosperous patch, people should have paid off their mortgages - splurged a little, but not a lot. Instead, the majority of the population (baby boomers especially) upgraded their homes, drew on the equity in homes and spent it on conspicuous consumption - and here we are with high house prices and rising interest rates. Not sure if I completely agree with his POV but it was definitely worth thinking about. Re: Interest Rates up .25% today... 5Aug 09, 2007 1:00 pm On the radio this morning they had callers whinging about the interest rate rise.
I really cannot understand how 1/4% can mean the difference between a "comfortable" existance, and not being able to afford food & nappies as one caller claimed. Don't these people even consider these things before committing to a massive loan just because they want a $600k McMansion as a first home? If the rates hit 10%, then I'll start to feel sorry for people, but until then they only have themselves to blame for over-committing. Re: Interest Rates up .25% today... 6Aug 09, 2007 1:18 pm commodorenut On the radio this morning they had callers whinging about the interest rate rise. I really cannot understand how 1/4% can mean the difference between a "comfortable" existance, and not being able to afford food & nappies as one caller claimed. Don't these people even consider these things before committing to a massive loan just because they want a $600k McMansion as a first home? If the rates hit 10%, then I'll start to feel sorry for people, but until then they only have themselves to blame for over-committing. True, we factored in rate rises up to 10% to make sure we could afford it. Adrian B Re: Interest Rates up .25% today... 8Aug 10, 2007 12:14 am devank May be not just 1/4%.. but adding that 9 times? 0.25 x 9 = 2.25% Loan of 400K x 2.25% = $9K! That't a bit lot. Hmm.. that seems a bit high.. did I make a mistake somewhere?? Nope, thats right. $9k extra interest per year. Thats an extra $173 per week. Re: Interest Rates up .25% today... 9Aug 10, 2007 9:11 am But remember, those 9 rises have been over a number of years and that wages have been growing.
Wage growth has also been high over this time. So while you may be paying more in interest - you're also earning more. Of course - this doesn't work if you simply spend any wage increases (from growth or from tax cuts) on conspicuous consumption. Re: Interest Rates up .25% today... 11Aug 10, 2007 4:32 pm 9 rises may have been over several years but 4 of them have been in the last 12 months and I haven't had a pay rise in that time. It's not the difference between food and no food but it definitely begins to have an impact on your lifestyle. Unfortunately you can't fix you interest rate on a construction loan so we've just had to wear it. Finally finished construction so time to fix our rate! Re: Interest Rates up .25% today... 12Aug 10, 2007 9:51 pm I think there's some real truth in those statements that people are indulging in mindless consumerism and over commiting to buy more than they need/ can afford.
Never did understand that impulse myself, I'd rather enjoy life comfortably than work my backside off for a little extra money so I could buy more stuff..... stuff doesn't make for a happy Mick All I need is my missus, my dogs, my mates and my sport... plus a little diy to fill in the spare time We bought well below our means for redundancy also, I couldn't live under the fear that one little interest rate rise could break me, how horrible a life that must be I suppose the mindless pursuit of money and its use as a measure of a persons worth and status is a very American thing and most of the world is good at imitating Americans..... they have an almost utopian society don't they Re: Interest Rates up .25% today... 13Aug 11, 2007 7:41 am Mick, you've summed it up perfectly. Replace sport with cars & that's me all over! Re: Interest Rates up .25% today... 14Aug 11, 2007 11:13 pm You would have poured some big $'s into those cars though commo... even though I know you would have spent very little on labour given your many talents, that constant spending is consumerism too in my books. Re: Interest Rates up .25% today... 15Aug 12, 2007 7:12 am stonecutter1309 But remember, those 9 rises have been over a number of years and that wages have been growing. I am but a simple office worker - I am not on a 6 figure income or anywhere near that amount. I have not had a significant raise in pay to cover the growing costs of living. Our Adenbrook home was completed in September. |