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Rate Rise Unhelpful

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Rate Rise Unhelpful

August 2007

Recent rise in interest rates will make it that much harder for those Australians battling mortgages and for those desperately trying to enter the market, the Housing Industry Association has said.

HIA’s Managing Director, Ron Silberberg, said today’s rate rise was the last thing Australian households needed. Not only are interest rates up so are house prices.

“It’s a double whack for average Australians,” Dr Silberberg said.

Housing affordability is now at a record low, with little prospect of any improvement.

“Too many are being locked out of the market which is having some disturbing consequences for the private rental sector which is already strained,” Dr Silberberg said.

The increase means that on average, households will be forced to find an extra $40 per month to meet repayments. Faced with the pressures of rising petrol and grocery prices it is truly becoming a case of the straw that broke the camel’s back.

“The current housing situation is dire and shows all the symptoms of inadequate supply. There is an immediate requirement to address supply constraints as without an increase in availability of affordable housing stock the situation will get worse,” he said.

Census data from 2006 shows that mortgage and rental stress are worse for those under 35 and single parent families. There are now more than one million households in housing stress and it is having serious effects on Australian families.

“To dismiss housing affordability as media beat-up shows callous indifference. There is urgent need for Governments to show some leadership,” Dr Silberberg said.

Master Builders Australia has expressed concern at the Reserve Bank decision to lift interest rates by a further 0.25 per cent, warning that it will delay the housing recovery, particularly on the eastern seaboard by making home ownership even less affordable.

“Although not fatal for the building industry, the latest rate rise will be unhelpful for the housing sector recovery,” said Master Builders Australia Chief Executive Officer Mr Wilhelm Harnisch.

“Higher interest rates, by acting to delay the housing recovery, will only compound the growing imbalance between demand and supply now estimated at 30,000 dwellings per annum,” Mr Harnisch said

He said it needed to be recognised that the latest 0.25 per cent increase in rates would add another $40 a month in repayments for homebuyers facing a modest mortgage of $250,000.

“Although most income earners’ pay packets have been boosted by more than $60 per month via the Commonwealth’s 1 July tax cuts, the benefits to households will now be diminished by higher mortgage repayments,” he said.

“Whilst the rate rise may dampen inflationary pressures elsewhere in the two speed economy, it can only act as a negative for residential building.

“The latest rate rise will worsen housing affordability.

“Certainly, no one can possibly suggest that the housing market is over-heating or that levels of consumer debt are rising at the rate which so concerned the Reserve Bank three or four years ago.

“Higher interest rates will only delay recovery with the concomitant risk of a boom when conditions reverse.

“The latest rate rise should also be a timely reminder for State and Local Governments to deal with the supply-related problems that have significantly increased costs and therefore prices facing first home buyers, Mr Harnisch said.

“Inefficiencies in land supply, the development approval process, increased building regulations and taxes and charges, particularly stamp duty, have been primarily responsible for the worsening housing affordability situation.”

A table of the effect of the August increase in interest rates on average mortgages is provided below.

Monthly Payments by Mortgage Value Range

Loan Size 8.05% 8.30% $ Per Month
$100,000 $775.13 $791.79 $16.66
$150,000 $1,162.70 $1,187.69 $24.99
$200,000 $1550.26 $1,583.59 $33.33
$250,000 $1,937.83 $1,979.49 $41.66
$300,000 $2,325.39 $2,375.38 $49.99
$350,000 $2,712.96 $2,771.28 $58.32
$400,000 $3,100.53 $3,167.18 $66.65

Monthly Payments on an Average New Mortgage

State Loan Size 8.05% 8.30% Additional $ Per Month
NSW $252,200 $1,954.88 $1,996.90 $42.02
VIC $230,000 $1,782.80 $1,821.13 $38.32
QLD $235,000 $1,821.56 $1,860.72 $39.16
SA $183,000 $1,418.49 $1,448.98 $30.49
WA $241,000 $1,868.07 $1,908.22 $40.16
TAS $182,000 $1,410.74 $1,441.07 $30.33
NT $196,000 $1,519.26 $1,551.92 $32.66
ACT $242,000 $1,875.82 $1,916.14 $40.32

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