Forums / Getting Technical / Finance / Interest Rate increase

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  • Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Ars at a meeting on 7 August the Reserve Bank of Australia decided to increase the cash rate target by 25 basis points to 6.5 per cent.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of foundationfoundation
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    @foundation
    Join Date: 2005
    Post Count: 1,153

    Hmm. Interesting. This is apparently the first time such a move has been made during an election year, though yesterday I read that Hawke was re-elected just 9 months after interest rates hit 17%, so the claim must refer to calendar years. rolleyes.gif

    "VOTERS normally don't mind rising interest rates. Just ask former Labor prime minister Bob Hawke, who won his fourth election in March 1990 despite home loan rates peaking at a record 17 per cent only nine months before polling day."

    We've heard plenty of wailing in the media about how this hike will effect "average Australians", but how will it effect the "average propertyinvesting.com forumite'? The savers can count their pennies, and consider their reduction in borrowing capacity. The debtors can tell us whether the hike will put pressure on their finances and what they might have to go without.

    I'll start. Providing the banks pass on the increased rates to savers, I expect to be $2.30 better off per week. In other words, not enough to buy a cup of coffee, therefore not worth even thinking about.

    Next?

    Profile photo of MooseheadMoosehead
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    @moosehead
    Join Date: 2006
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    Something to keep in mind when the next housing affordability beat up story makes the news:

    http://www.news.com.au/business/story/0,23636,22208735-14302,00.html

    Households are spending about the same on housing as they have before, but a lot more on the air-con, 2nd fridge, dishwasher etc…

    Interestingly less is being spent on food and clothes to support this habit it seems!

    Discuss!

    Profile photo of foundationfoundation
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    @foundation
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    Moosehead<font wrote:
    Households are spending about the same on housing as they have before, but a lot more on the air-con, 2nd fridge, dishwasher etc…

    Not quite, Moose. Households are putting the same proportion of total expenditure toward housing, but over those 20 years, the amount of household income being spent has risen from around 90% to around 104%. And this is only going to rise over time, given that future buyers will be taking on loans and repayments that are much larger relative to their income.

    On a related note, did you realise just how much of our expenditure relies on debt these days? It's frankly worrying (and absolutely unsustainable).


    Chart courtesy of Steve Keen: http://debtdeflation.com/blogs/

    Despite all this talk of a strong economy / export driven economy or what-have-you, the primary source of income in this country is debt! Our own debt! We're effectively borrowing to pay ourselves.

    The growth in mortgage debt alone added the same amount of money to our economy in the first quarter as our exports!

    We're now addicted to debt, and absolutely, hopelessly trapped. At some point in the future, the rate of debt growth must slow to our rate of income growth or below. That implies a reduction of 50%+. In other words, more than 50% of our current annual debt growth is the unsustainable bit. And if debt growth were to lose that 50+% tomorrow (ie become sustainable), we'd be plunged almost instantly into recession. In fact, the only thing that has kept our economy growing for several years now has been this debt growth… ugh! This can't end well!

    What was the question again?

    F. [cowboy2]

    Profile photo of Jessica3Jessica3
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    @jessica3
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    I couldn't agree with you more foundation. We are drowning in our own debt. Borrowing more to pay for personal debt we can't pay.

    I have vowed this year to get rid of all credit card debt that I have!! 

    Profile photo of L.A AussieL.A Aussie
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    @l.a-aussie
    Join Date: 2006
    Post Count: 1,488

    Did that years ago. No consumer debt here thanks.

    Now the card is used solely for the purpose of racking up more frequent flyer points, but we pay the balance off every month.
    Notice the f.f flights are harder to get these days?

    Has anyone seen "sicko" by Michael Moore yet? I needed a moggy to calm down after it.
    His conspiracy theory in one part of the movie was that the whole debt situation is engineered by the Govt and Corporations to keep the average joe trapped in debt, needing the job and too scared to make a move, obedient little footsoldiers for the Corporations earning $10 an hour until they die.

    My cynical mind tends to agree; wonder if the same system is in motion in Aus? At least the pay rate in Aus is still ok…for now.

    Profile photo of frogwalfrogwal
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    @frogwal
    Join Date: 2007
    Post Count: 9

    My loans are: 1) fixed till Sep 08 – 5.99%
                             2) fixed till Feb 08 – 6.69%
                             3) fixed April 2012 – 7.25%
                             4) fixed July 09 – 6.74%
                             5) variable (15k) – 7.49%
    With my tax return $$$ coming off variable loan rate increase doesn't affect me.  Rents increasing 10-30%+ /annum so I wouldn't imagine interest rates will affect me at all.

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Frog

    You say that interest rates will not effect you but Feb 08 is 7 repayments away and Sep 08 only 12 away.
    Dont think you will be locking in at the current rate come expiry so will certainly have an effect. 

    F is correct and something i have said for years we are literally drowning in Consumer debt.   

    Thanksfully over 40 of my IP's are now mortgage free with the others down to less than 28% LVR so an increase is just about reviewing you the rents and looking an annual increases. I know however for a lot of others a  25 BP increase will have a dramatic effect.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of frogwalfrogwal
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    @frogwal
    Join Date: 2007
    Post Count: 9

    Brilliant Q's and comments to be considering f and Richard.  You've proved to me how easily you can lose everything if you're not treating your investment portfolio like a business.  I've just completed some spreadsheets and discoved even with the interest rate rise to 8% I will be $871/month better off or $10,452/yr so I'll still have a bit of a buffer.  If things got really tough I could also go back to work or get partner to do a bit of OT so I can't see myself having to panic sell in a hurry.  Thanks for motivating me to take a closer look at my financial position!

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