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Interest rate increase

Discussion in 'Where to Buy' started by Xiao Hui, 27th Dec, 2015.

  1. Xiao Hui

    Xiao Hui Well-Known Member

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    Hi folks

    Understand that there's going to be rise in the local banks' interest rate soon, esp when USA is doing that now.

    What's the impact on property investment mood here and property prices in general?

    There's a saying that this expected rise will result in some people not able to repay their housing mortgages, resulting in mortgage or fire sales of their properties. If that's going to happen, wouldn't it be better to hold on till then to purchase a property?

    Or will this interest rate rise have not much impact on property prices here?
     
  2. johnpendlebury

    johnpendlebury Well-Known Member

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    Who is saying that?

    The state of the American economy right now is very different to ours.

    Rate cuts are more likely than rate rises here in the near term.....
     
  3. Scott No Mates

    Scott No Mates Well-Known Member

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    The oceans will swell up, great cracks will open up in the earth exposing the core, winds will strengthen and there will be a grinding and gnashing of teeth.

    This will scare off some investors but make others more bullish.
     
  4. MattA

    MattA Well-Known Member

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    Buy Buy Buy... no wait, Sell Sell Sell
     
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  5. jins13

    jins13 Well-Known Member

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    First off all, this post is in the wrong section.

    I am no expert in this area and willing to listen and learn from others. I personally feel that this is not going to impact on us too much and there is no evidence of our rates increasing in the short term. I am more concerned about what's happening in Asia.
     
  6. MTR

    MTR Well-Known Member Premium Member

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    Interest rate rises will impact on the performance of property, same as when interest rates drop. When rates rise market sentiment changes, fear sets in, and the old chestnut... can you service the debt?

    Same as APRA has effected property markets, suddenly you have investors who can no longer source finance due to serviceability criteria, therefore they can no longer buy. There is a thread on this, just do a search.

    MTR:)
     
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  7. MattA

    MattA Well-Known Member

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    Sorry Xiao, a little bit too much of an open question to really generate a decent response...

    To answer your question, if interest rates return to historic averages of +/- 7% then we could see some pain in the market but a single rate increase won't have too much impact on the general population...
     
  8. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    I'm not seeing any signs of an RBA rate rise in Australia any time soon. What has made you believe otherwise @Xiao Hui? :)
     
  9. Xiao Hui

    Xiao Hui Well-Known Member

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    Steven

    I was in Singapore and read from papers here that there could be rise in interest rates in banks here. Not sure how true it is...

    But in Asia, including Singapore, this is starting to happen, a direct impact from what's happening in USA.
     
  10. Fargo

    Fargo Well-Known Member

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    Even if they do go up it wont have much effect , the rates are not a problem getting finance is a problem , banks calculate servicing ability at 7% anyway, LVRs and mortgage defaults are at a 10 year low.
     
  11. MTR

    MTR Well-Known Member Premium Member

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    Steven
    They just went up .25% banks did this recently.
     
  12. MTR

    MTR Well-Known Member Premium Member

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    Fargo
    I will have disagree with you, if rates continue to rise it will impact significantly.

    As you mention if you can not get loans due to serviceability people stop buying property, this is where supply vs demand comes into play, if there is too much stock on the market property prices fall.

    Once APRA came into play property prices started to fall back in parts of Sydney, Melb, this was designed by government to cool the property market and it is working. Am I the only one who sees this???

    MTR:)
     
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  13. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Depends on the bank. Some lenders do calculate their assessments in a way that means if there's rises of 0.25 or 0.50 their serviceability won't be affected but beyond that it probably will be diminished by increasing rates. Dropping rates definitely won't improve their serviceability, it'll remain where it is.

    There's also lenders that any adjustment in rates will have an affect on their serviceability, up or down in line with rate adjustments. These lenders are in the minority, but are generally considered to be the more 'generous' lenders for serviceing purposes.

    Certainly APRA's influence has had an affect, but sooner or later the market was going to cool regardless. I don't know that APRA brought it forward by that much either. I do know that by their actions, APRA have made it significantly harder and significantly slower for the average Australian to acheive financial independance through property investment. They've also made it harder and more expensive for every type of purchaser, including first home buyers.
     
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  14. Xiao Hui

    Xiao Hui Well-Known Member

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    I agree with MTR. Govt intervention and bank's actions have an impact on property prices.

    Singapore prior to 2013 was experiencing what we are seeing in Sydney recently - explosive property price increases. The govt then came up with a series of hard policies (much harder than Australia's) to cool prices. This include mimimum 30% cash deposit for purchase of any residential property, a limit to the housing loan bank can give based on a person's disposable income and a higher stamp duty imposed on all people, citizens inclusive, who purchase the second and above properties, among others.

    The result??

    Drop in demand for properties by potential buyers. And vendors who want to sell have to drop prices to entice buyers. Developers of new projects not only have to drop prices, but also absorb the extra stamp duties imposed by the govt to sell..

    And now with the expected rise in interest rates by bank there, this could further crub demand for new properties and possibly impact on existing house owners in serving their housing loans..

    So using Singapore as an example, I think govt and bank actions have an impact on property prices. Just my observations so far..
     
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  15. dabbler

    dabbler Well-Known Member

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    Oh ****, great, now I have no idea what to do........do you mind making a decision one way or the other so we know what to do ? ;)
     
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  16. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Was referring to RBA moves :) See below.

    As MTR mentioned above, banks did this recently. I won't be holding my breath for it to happen again any time soon (and definitely not a rise from the RBA in the short term). Banks lifted rates out of cycle to slow growth of investment lending to under 10% as APRA had their foot on their throats. Lifting rates (predominantly for investors) solved the problem and allowed them to grab some money. Win-win for the banks. It's worked, so no reason to touch rates again except for a money-grab.

    What's happening with rates in the US is a a result of happening in the US and its economy. The RBA makes rate decisions based on Australia. At the moment things aren't looking pretty in Australia. Until that changes, it seems very unlikely rates will be going up.

    Of course, my crystal ball isn't perfect but I don't see any reason for rates to go up in Australia based on the current conditions.
     
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  17. Bran

    Bran Well-Known Member

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    My understanding is that they DO need another 0.2% (I've forgotten the reason - to balance their 'capital', was it?)
     
  18. Nick Valsamis

    Nick Valsamis Well-Known Member

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    But really it was to offset the next rate cut.
     
  19. twistedstats

    twistedstats Well-Known Member

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    Definitely a policy divergence between the US and Aus with the next RBA move likely down. What matters to us is the mortgage rate which has gone up for investors due to banks passing on some of the costs from requirement to hold more capital. Apart from of course more regulation, can see also a tail risk possibility of out-of-cycle hikes if the bank's cost of funding increases.....say if the economy deteriorates and housing comes off more than expected.
     
  20. Fargo

    Fargo Well-Known Member

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