Will rates rise?

[Calliope]

The people this will impact on most are those that already have mortgages.

I have no sympathy to waste on people who took out mortgages, without taking into account that as the economy improves interest rates will rise. Rates are still historically low. Those whining about the banks should have done their homework before taking out the loans, on minimal deposits.

 

[Buckfont]

I have no sympathy to waste on people who took out mortgages, without taking into account that as the economy improves interest rates will rise. Rates are still historically low. Those whining about the banks should have done their homework before taking out the loans, on minimal deposits.

People are either desperate or stupid and I`d go with the former, as the idealism that one has to have a mansion or a snappy appartment to fit in with the norm.

I may be old fashioned, but even in my daughters case who is building a new home,it is ridiculously oversize, with a bathroom as large as my bedroom



I feel for those that are in her position and I hope when at todays new cash rate of 4% they never have to revisit the 15-17% of the Keating days. They have no idea how well off they really are, and how well they could be sewing the seeds of future financial prosperity if they could go down a few extra rungs on the ladder and made a sacrifice or two.

Even another 2% rate rise will pummell most young couples especially one with kiddies with both parents working.

 

[noirua]

I always think that all these rate movements are a case of knee jerk reactions. If the rate falls below 2% or above 4% then the Government, who's job it is to run the country, have basically 'cocked it up'.
Australia needs quite rapid growth, imho, of between 6% and 8% for many years to come. After all, 'Rudd & Co' want rapid population growth and more people inland, 'not all dotted along the coast'. Rudd & Co want people working not surfing.

 

[Investor82]

They have no idea how well off they really are, and how well they could be sewing the seeds of future financial prosperity if they could go down a few extra rungs on the ladder and made a sacrifice or two.

I think I fit into the category of "sacrafice" having never lived in a property which I own. Often sharing a run down appartment or house with friends (even at times living in my car at the beach - despite having more than one property). I have never paid more that $150/week in rent, have never had a car loan, and clear all my credit card debt each month - plus sometimes working 2 jobs. But I wittness many friends and family members doing the same as your daughter buying/building houses they cant really afford because the alternative is 'below' them.
Unfortunatly though I still have large amounts of debt. The interest rate rises affect my lifestyle and (as long as they dont jump too high) I will continue to survive.
Maybe rather than fitting into the "stupid or desperate" category I sit in the "greedy investor" category.

Everybody has to start somewhere and unfortunatly not many start with a lump sum, so often debt is the only option...

 

[Soft Dough]

The interest rate rises/falls are supposed to be based on the basket of goodies that determines inflation. Not the bleeding rises in property prices. This increase, on the basis of trying to reign in housing price increases, is just another example of a regulatory body loosing sight of it's charter and stepping into areas it should keep the fark out off.
The people this will impact on most are those that already have mortgages. This will reduce the amount of money circulating within the economy (at a time the economy needs stimulus), will impact on new building projects and will have a negative impact on the economy going forward (where the inflation rate does not warrant it).
At this point I begin to wonder if the Reserve Bank feels it has an obligation to take over where John Howard left off.

Perhaps it is a reaction to the government intervening in the property market, when they should have left it to market forces..

A solution to any cashflow problem is to draw down some of the increased equity derived by the governments First home vendors splurge and use this money to pay the extra interest.

I mean there is no reason to whine and moan when you have to pay a few dollars extra per month because the government, through reckless incentives increased the value of your property by 10% is there.

 

[Julia]

I have no sympathy to waste on people who took out mortgages, without taking into account that as the economy improves interest rates will rise. Rates are still historically low. Those whining about the banks should have done their homework before taking out the loans, on minimal deposits.

The government also contributed to first home buyers being in this situation with the increase in the grant. It has essentially been Australia's version of the US's subprime market.

I always think that all these rate movements are a case of knee jerk reactions. If the rate falls below 2% or above 4% then the Government, who's job it is to run the country, have basically 'cocked it up'.
Australia needs quite rapid growth, imho, of between 6% and 8% for many years to come. After all, 'Rudd & Co' want rapid population growth and more people inland, 'not all dotted along the coast'. Rudd & Co want people working not surfing.

The Reserve Bank has in fact been 'fixing' the inflation caused by the government's various stimulus packages.
I can't help wondering what would have happened if the RB or the government had done nothing and the whole situation was simply left to market forces. At least we would not have had first an artificially stimulated economy and then (via the RB) a need to put the brakes on the results of that stimulation. All just seems a bit silly, really.
But perhaps I just don't get it.

I think I fit into the category of "sacrafice" having never lived in a property which I own. Often sharing a run down appartment or house with friends (even at times living in my car at the beach - despite having more than one property). I have never paid more that $150/week in rent, have never had a car loan, and clear all my credit card debt each month - plus sometimes working 2 jobs. But I wittness many friends and family members doing the same as your daughter buying/building houses they cant really afford because the alternative is 'below' them.
Unfortunatly though I still have large amounts of debt. The interest rate rises affect my lifestyle and (as long as they dont jump too high) I will continue to survive.
Maybe rather than fitting into the "stupid or desperate" category I sit in the "greedy investor" category.

Everybody has to start somewhere and unfortunatly not many start with a lump sum, so often debt is the only option...

I don't mean to be asking intrusive questions, but if you have lived so frugally thus far and always clear your credit card debt, how is it that you have 'large amounts of debt"?

 

[noirua]

The Reserve Bank has in fact been 'fixing' the inflation caused by the government's various stimulus packages.
I can't help wondering what would have happened if the RB or the government had done nothing and the whole situation was simply left to market forces. At least we would not have had first an artificially stimulated economy and then (via the RB) a need to put the brakes on the results of that stimulation. All just seems a bit silly, really.
But perhaps I just don't get it.

I've always preferred the idea of increasing taxation when growth looks to be getting too strong or windfall taxes. This helps build a big reserve for the bad times or just reduce the peak and troughs to aberations.

 

[Tink]

People are either desperate or stupid and I`d go with the former, as the idealism that one has to have a mansion or a snappy appartment to fit in with the norm.

I may be old fashioned, but even in my daughters case who is building a new home,it is ridiculously oversize, with a bathroom as large as my bedroom

I feel for those that are in her position and I hope when at todays new cash rate of 4% they never have to revisit the 15-17% of the Keating days. They have no idea how well off they really are, and how well they could be sewing the seeds of future financial prosperity if they could go down a few extra rungs on the ladder and made a sacrifice or two.

Even another 2% rate rise will pummell most young couples especially one with kiddies with both parents working.

Yep Buckfont, but some of these new estates have covenants where they have to build their house a certain size

I bought my first house with the 17% - I dont think it will ever get to that again.

 

[nulla nulla]

You would need to talk to the Reserve Bank to rationalise what is in the basket of goodies and what isn't.
House prices are determined by supply and demand. If the Government thinks prices are too high they should consider opening up more land for developers on the basis that a percentage of the developement will have prices capped for sale to genuine first home buyers etc etc.
Owning an expensive house does not necessarily mean capital is locked up for ever. Most home owners use the capital in their properties as security to raise investment funds to acquire other properties of business investments or, horror of horros, to trade the share market.
I suspect your argument is subjective or biased as you have previously stated you sold at the top of the boom and now rent at half the cost you previously paid into the sinking fund. Your problem will come when you decide to re-enter the property market and you find property value have outpaced the short term gain you made from selling at the peak and renting.

 

[satanoperca]

Your problem will come when you decide to re-enter the property market and you find property value have outpaced the short term gain you made from selling at the peak and renting.

Of cause this is based on the assumption that property is not in a bubble and will continue on it uphill charge for the coming years. That the global issue of massive indebtness has passed and everything is back to normal.

If this is your assumption then why complain about a small interest rate rise.

Cheers

 

[Tysonboss1]

I don't mean to be asking intrusive questions, but if you have lived so frugally thus far and always clear your credit card debt, how is it that you have 'large amounts of debt"?

I think he is talking about investment debt,

I am in the same boat as him, I am turning 28 in 7 days, have always lived very frugally and have $0 personal debt, but have over $1M in investment debt (Investment home loans,Business loans, margin loans etc etc) although it is positively geared and on a comfortable LVR.

Leverage is a great tool that works 99 times out of 100, how ever when it does go wrong it is game over. So any one that does find themselves building a large portfolio funded by debt, don't forget to have a plan on how you are going to clear this debt.

A wise man said you only have to have your head under water for 10mins and it's game over, you can have you head under water for 30 seconds every day and be ok, But if a perfect storm comes (12% interest) and you haven't prepared yourself, you will wipe out your entire capital base.

I don't believe in having interest only loans forever, you should always have the bulk of your debt in a reducing cycle. Never rely on the kindness of banks, dont over leverage and if you do, make sure it is sort term to take advantage of a lull in the market and have a plan to steadily reduce the leverage i the following years.

 

[Investor82]

I think he is talking about investment debt

Yeah - it is investment debt. I am 27 (28 in June). I am implimenting a 10 year plan (I am 3 years in) and if everything goes to plan I will be in a possition to retire at age 35. Thats the plan anyway.
But every 0.25% is about $500/month to me. I have about 2% left in my capability but in 12 months, I will have completed a small project which will ease the pressure (again - all going to plan - which admitedly its not right now).

I earn USD so I am really hoping for an AUD crash anytime soon. Since Jan last year my income has dropped 30% and I have had over 1% increase in interest rates. It is pretty close to a "perfect storm" for me, a couple more waves could sink the boat, but a change of wind direction will see me sailing safely to the sunset

I am probably pushing my luck a little bit, but I am pretty ambitious so thats always bound to happen.

The reason I am researching share trading (and hence visit this site) is Im seeking ways to improve my cashflow. My idea is to jump into the market in probably about 12months time.

 

[Investor82]

I don't believe in having interest only loans forever, you should always have the bulk of your debt in a reducing cycle.

Admitedly this is something which I have failed to do over the last 3-4 years, and in hindsite has been a mistake. Which I will correct asap. I took some advise when I was young, which said that money being used for debt reduction can be better used elsewhere. I disagree with that now I know more.

Never rely on the kindness of banks, dont over leverage and if you do, make sure it is sort term to take advantage of a lull in the market and have a plan to steadily reduce the leverage i the following years.

I am probably over leveraged atm, and will be for the next 12months until this project is completed. Once it is finished I will have the option to either increase income (rent) or reduce debt (property sale). My decision will depend on conditions at the time.

 

[Timmy]

I am implimenting a 10 year plan (I am 3 years in) and if everything goes to plan I will be in a possition to retire at age 35.

Good on you I82.

Maybe checking out some of the info around on hedging your FX exposure could be helpful to reducing your risks?

 

[Investor82]

I know the basics of FX but will look into it, see if there is anything I can do to reduce the exposure.
The difficulty is in the fact that my income is relatively low figures when looked at from a traders position.

Thanks for the heads up though.

 

[noirua]

The Reserve Bank is just that 'Reserved'. Come on now let's have a boom with growth rates up to China's 8% - 10% target. Fair enough, that equals higher risk, but Australia really need to stamp its authority on the rest of the World and not look like a puppet of China.

 

[Julia]

Back to the recent rates rise: two banks announced increase in loan rates the same day the RB raised the cash rate and the other two followed (I think) the following day.

Now almost a week later, and there is no change in deposit rates.
Are we surprised? I don't think so.

 

[GumbyLearner]

Yes.

When? :dunno:

How much? :dunno:

I'm really happy with rates going up though. Fantastic news for savers.

 

[Julia]

Yes.

When? :dunno:

How much? :dunno:

I'm really happy with rates going up though. Fantastic news for savers.

My point was that they haven't gone up with the last RB rise!

 

[GumbyLearner]

My point was that they haven't gone up with the last RB rise!

You could be mistaken Julia but I was addressing the original question started by the thread initiator.