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Property and retail sectors hail rate cut – but just how low can rates go?

The Reserve Bank of Australia’s decision to cut rates by 1% yesterday has been welcomed by business groups, with the property and retail sectors confident that the cuts can provide their industries with a much-needed spark.
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Are we headed for a property crash?

Is the property glass half-full or half-empty? Opinions vary so much that SmartCompany has had to talk to a comprehensive range of experts to get some answers.
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Before you start trying to work out which direction the property market is headed, you should be aware that there are markets within markets.

Paul Clitheroe

Mortgage repayments to jump by 50% for some homeowners

Large numbers of Australian homeowners face the prospect of up to 50% increases in their mortgage repayments this year, warns property group Raine & Horne.

Angus Raine, Raine & Horne CEO, says the large number of Australian mortgage-holders with fixed rate loans that expire this year will be hit with massive increases in their mortgage interest bill.

"The Reserve Bank has increased interest rates eight times since 2005, which borrowers locked into fixed rate loans have been immune to until now," Raine says.

"However this year, 30% of Australians with mortgages will shift from fixed interest rates at around 6%, to standard variable interest rates nudging 9%. They will basically face the prospect of three years worth of interest rate hikes, and this will rock many household budgets."

Gary Lees, General Manager of Raine & Horne Financial Services, says the financial impact could be very significant.

"On a 25-year interest only mortgage of $350,000 at 6%, a homeowner will be making monthly repayments of around $1,750. If the rate jumps to nine percent, the monthly repayment is $2,625," he says.

Lees urges homeowners to begin a lifestyle review to help minimise the damage of higher interest rates.

"If a homeowner knows that mortgage repayments are set to jump by $150 a week, they need to tweak their spending and budgeting. It might mean a gradual lifestyle change that is more in step with the prospect of higher repayments," says Lees.

Publication:Your Investment Property. magazine.