Home Finance & Economy Reserve Bank of Australia: Rising Interest Rates Threaten Homeowners and Mortgage Holders

Reserve Bank of Australia: Rising Interest Rates Threaten Homeowners and Mortgage Holders

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Homeowners and mortgage holders should be prepared as they may feel the impact of rising interest rates, the Reserve Bank of Australia (RBA) warns. The governor of the bank, Philip Lowe, stated in Canberra on Tuesday that it has been eight years since the last interest rate hike of the bank.

“Many borrowers have never experienced a rise in official interest rates,” the governor said. “If we continue on this current improving track, as we expect we will, it is likely that the next move in official interest rates will be up, not down.”

He noted that not everyone will agree about normalising policy settings. Additionally, not all borrowers would be comfortable with raising interest rates.

Lowe urged borrowers to be prepared with their finances, and avoid extending credit facilities to their limits. He also encouraged borrowers to make use of mortgage offset accounts.

Lowe further added that homeowners should not expect home values to climb in the coming years. According to the governor, housing prices in most cities have dropped in recent years. Housing prices will likely trend higher as income increases, but that is no indicator of short term, actionable value gain.

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The RBA has been keeping the interest rate on hold at 1.5 percent since August 2016. The bank is expected to raise interest rates in the second half of 2019. However, this will depend on the job market and inflation rate.