Increase in Interest Rates - Expected Impact

Discussion in 'Property Market Economics' started by MTR, 7th Feb, 2018.

Join Australia's most dynamic and respected property investment community
  1. MWI

    MWI Well-Known Member

    Joined:
    17th Jul, 2017
    Posts:
    2,287
    Location:
    Lower North Sydney NSW
    It was all relative, wages were much lower than too.....
    We had $135K on $35K salary and $30K salary with spouse....at 16.5% interest, it was tough! Plus a recession we had to have during Keating times so very scary as one of us was retrenched so half of the year with such mortgage with only one gross salary! As I say it took sacrifices...delaying family, lunches to work, no unnecessary spending, lived very plainly in todays' terms....
     
    Marg4000, Perthguy and willair like this.
  2. mickyyyy

    mickyyyy Well-Known Member

    Joined:
    26th Jan, 2016
    Posts:
    867
    Location:
    Sydney
    Totally agree! All i know is ppl are going to get caught with pants around there ankles as they are not well prepared...
     
    MTR likes this.
  3. Duck1234

    Duck1234 Well-Known Member

    Joined:
    1st Apr, 2018
    Posts:
    211
    Location:
    Syney

    My friends all have close to 1 million mortgage. Late 20 early 30. No equity. Help with deposits from parents.


    I guess they have their parents worse comes to worse
     
    mickyyyy likes this.
  4. MTR

    MTR Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    27,786
    Location:
    My World
    Yes the bank of mum and dad
     
    mickyyyy likes this.
  5. Herbert

    Herbert Well-Known Member

    Joined:
    14th Jan, 2018
    Posts:
    78
    Location:
    sydney
    RBA rates really are not the story, I'm surprised how many people think they are. Wholesale funding is the worry, and probably the killer.
     
    d_walsh, mickyyyy and Duck1234 like this.
  6. Duck1234

    Duck1234 Well-Known Member

    Joined:
    1st Apr, 2018
    Posts:
    211
    Location:
    Syney
    US has 3/4 hikes priced in atm. And that’s 0.75 to 1% rate hike.
     
  7. JDP1

    JDP1 Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    4,244
    Location:
    Brisbane
    I would probably agree. The rba is going to be very conservative in rises.
    Neither households nor equities will be pleased in increasing rates. On the backdrop of low inflation plus no/little rise in wages, any near term will be conservative.
    Global competitiveness is also a problem (not sure how much the rba will factor that in)..It's been a problem for a while and will likely continue to be for the short term.
     
  8. hieund85

    hieund85 Well-Known Member

    Joined:
    16th Nov, 2017
    Posts:
    1,068
    Location:
    Melbourne
    But then why most banks have their fixed rate (2-3 years) not higher or even lower than the variable rates now?
     
  9. Marg4000

    Marg4000 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    6,380
    Location:
    Qld
    I don’t give personal information on the internet.
    Marg
     
  10. PandS

    PandS Well-Known Member

    Joined:
    14th Feb, 2017
    Posts:
    1,165
    Location:
    NSW
    If you buy properties and worry about 1-2% rate rise then frankly you are over leverage and haven’t got your risk management right ...

    Investing is not all about making money but make money with proper risk management in place so you get to keep it ... else you just give back all the gains and maybe in worse position than when you started

    Without risk management you rely on luck and luck run out good risk management last forever
     
    Someguy and Brickbybrick like this.
  11. marmot

    marmot Well-Known Member

    Joined:
    23rd Jan, 2018
    Posts:
    1,215
    Location:
    N.S.W , W.A
    What a lot of people tend to forget about that era was that interest rates only rose by about 3-4% from their previous high just prior to the stock market crash of 87.
    After the 87 stock market crash , commercial and residential property went ballistic when interest rates dropped by a couple of %.
    Australia wide ,I think house prices rose by about 30% ,yields dropped by almost 2% and when a few things started to go wrong with the economy , it all turned into a giant turd, with way to much debt and an overheated property market.
    With many new homeowners suddenly realizing they could not afford the new repayments as interest rates shot back up.
    And then you had all the bad debts that had to be written off in commercial property and shonky business dealings , as a result a couple of state banks and some building societies went under and the big banks suffered some big losses and we had the recession we had to have .
     
    Last edited: 30th May, 2018
  12. Herbert

    Herbert Well-Known Member

    Joined:
    14th Jan, 2018
    Posts:
    78
    Location:
    sydney
    Neither here nor there for the banks where variables are over a couple of years on a term mortgage, it evens out in the long run, bit like teaser rates.

    The banks will always make up the deficit later, the only fear they ever have, (and it may be a vanishing one in the current climate of the tax payer bailing them out) is if it really does go to hell, people get in negative equity, and start posting their keys through the door (jingle mail) rather than carrying on paying for a depreciating asset with no equity.

    It has happened elsewhere. The smart are out early and quietly, the rest chase the market to the bottom.
     
    Last edited: 30th May, 2018
  13. Duck1234

    Duck1234 Well-Known Member

    Joined:
    1st Apr, 2018
    Posts:
    211
    Location:
    Syney
    APRA is asking for 6 times income to debt. Maybe properties do go down. And maybe they don’t doubt every 10 years
     
    MTR likes this.
  14. HeadTheWall

    HeadTheWall New Member

    Joined:
    21st May, 2018
    Posts:
    2
    Location:
    Sydney
    Jingle Mail is an option in good old USA but not here, you walk away and you are still liable for any deficit when the bank sells your property
     
  15. radson

    radson Well-Known Member

    Joined:
    4th Jul, 2015
    Posts:
    1,563
    Location:
    Upper Blue Mountains
    I wouldn't be surprised if the next change in interest rates is down
     
  16. magyar

    magyar Well-Known Member

    Joined:
    16th Mar, 2017
    Posts:
    218
    Location:
    Brisbane
    Not necessarily. That's exactly what we did in the early 90's. Walked away dropped the keys of at the bank and see you later. No bankruptcy or anything needed.
     
  17. Herbert

    Herbert Well-Known Member

    Joined:
    14th Jan, 2018
    Posts:
    78
    Location:
    sydney
    Yes, you are, but that does not stop it happening. I have known someone who did this, losing everything. Left the country, returned a decade later, got married and set up home elsewhere in the country, and was then amazed when the bank came knocking for the deficit. You don't escape unfortunately, but if you can't pay what choice do you have apart from walking away.

    Sometimes you got to rip he plaster off, however much the banks want you to hang on in there giving it your all, the best bet is a restart, however much the banks hate it.

    Soft landings are not designed to make things easy for you, but to make things easy for the banks. I have lived a long life in several places, and watched and experienced a few scenarios pan out.

    Take care!
     
  18. 2FAST4U

    2FAST4U Well-Known Member

    Joined:
    3rd Jul, 2015
    Posts:
    2,304
    Location:
    Democratic People's Republic of Australia
    I'd take anything written by Robert Kiyosaki with a grain of salt.
    John T. Reed's analysis of Robert T. Kiyosaki's book Rich Dad, Poor Dad, Part 1
     
  19. MTR

    MTR Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    27,786
    Location:
    My World
    This is huge, cant service debt, cant buy .... more supply comes to market
    APRA worked
     
  20. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,599
    Location:
    Gold Coast (Australia Wide)
    Is it just APRA or normal market forces as well.

    at what point is the APRA thing not working ........

    Example. When has the target been overshot per Se.

    And if such a thing happens. Which I don't think it will but if it did will APRA fix it ;)

    Much of the stuff has be a round getting more in train with the Basel 4 rules so we don't end up as a banana republic, and that's not changing soon

    Ta
    rolf