TREMOR IN 3 MONTHS FOLLOWING INTEREST RATES HIKE

THE ‘tremor’ from the Reserve Bank of Australia’s last interest rate hike will be felt throughout homes in around three months, according to one Gold Coast financial planner.

Wealthfarm Financial Planners director Nicholas Sinclair (pictured), says home owners should prepare for the effect interest rates will inflict on their financial circumstances.

“Don’t go in blind about interest rates. They will go up especially when you enter a mortgage when interest rates are at an all time low. Interest rates go up and down in history, we just don’t know when,” he says.

“When you buy a new home, think about the cost of owning a new home, both and now and in the future. Plan for interest rate rises and integrate this into your budget forecasts. We expect to see the RBA increase interest rates at least two more times in the next six months. You will be caught out if you don’t manage these interest rates into your budget.”

While CBA chief Ralph Norris this week conceded the bank will lose customers due to his decision to increase rates above the official cash rate increment, the others banks have followed suite, putting downward pressure on mortgage holders.

“The four major banks have all announced interest rate rises well above the official cash rate. With more interest rate hikes likely, home owners need plan ahead and have disciplined cash management strategies in place,” says Sinclair.

“First home buyers who flooded the market last year due to the boost of First Home Owners Grant need to understand that they purchased their property when we were experiencing the lowest interest rates on record, so ultimately they need to understand this is going to rise.”

Australian Bureau of Statistics figures released last week revealed a 0.5 per cent fall in housing finance figures throughout the month of September. This follows a 1.2 per cent fall in August.

Mortgage Choice also recently reported that interest in fixed-rate loans has doubled in the month of October.

Sinclair is urging caution for those looking to lock in rates.

“Many home owners are rushing to lock in low interest rates before their mortgage repayments continue to swing upward. While there are some good fixed rate options available at the moment you need to ensure you gain solid financial advice for the best possible outcome,” he says.

“Buyers also need to ensure that if they decide to fix, they pay a rate lock fee, otherwise the interest rate can be higher upon settlement.”