Finance Finance News Borrower beware: Interest rate hikes to come in 2014

Borrower beware: Interest rate hikes to come in 2014

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The interest rate tide has turned, and homeowners are being told to prepare for possible rate hikes by year-end.

Australia’s cash rate currently sits at a record low of 2.5 per cent.

Some economists were expecting another cut in 2014, but higher than expected inflation figures on Wednesday have sent that door “slamming shut”, says TD Securities head of Asia-Pacific research Annette Beacher.

“I think you need to enter into a mortgage contract with eyes wide open that interest rates are going to be rising from here,” she said.

TD Securities expects the cash rate will be 3.0 per cent by year end.

Mortgage Choice’s Jessica Darnbrough said homeowners have been flocking to fixed rate mortgages since late last year in a bid to lock in low rates.

Some fixed rates had reached historical lows thanks to aggressive competition among lenders, she said.

“Our December figures show 33 per cent of all loans written through Mortgage Choice were fixed loans – wholly or partly fixed – it’s definitely the highest we’ve seen in six years, since March 2008,” she said.

“That doubled since the beginning of the year – in January, 16.35 per cent of all loans written were fixed rate and by the end of the year, it was 33 per cent.

“We expect that trend to continue as people are looking for that security and that stability and that piece of mind.”

Michelle Hutchison, from comparison website, said it was important to work out whether the interest paid on a fixed rate was worth the security and stability.

If you can find a fixed rate loan lower than the variable rate you’re currently paying, you’re onto a good deal, she said.

Those looking to buy a property may need to consider lowering their budget or saving a bigger deposit, she said.

Bigger deposits help lessen the effect of rate hikes but homebuyers also need to consider lenders mortgage insurance, a significant additional expense if you have less than a 20 per cent deposit, she said.

“If you think you will have trouble making your loan repayments if there is a rate hike then you might want to consider waiting until you have a bigger deposit saved or lowering your borrowing budget,” Ms Hutchison said.

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