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Interest Rates: Thinking Ahead

By Jamil Allouche

Many buyers searching for property in Brunswick or Pascoe Vale real estate felt relief earlier this month when the Reserve Bank did not increase the cash rate. Currently, it remains at 2.5 per cent, a record low.

However, Chief Executive Officer of the Real Estate Institute of Victoria (REIV) Enzo Raimondo warns that while the official cash rate remains low, some banks are beginning to increase their fixed term interest rates.

"Our analysis shows that at current interest rates buying a median-priced house of $595,500 would mean a monthly mortgage repayment of about $2,850. This assumes a 20 per cent deposit and excludes stamp duty and other costs," said Mr Raimondo.

"But an interest rate rise of 25 basis points could wipe about $15,500 off the price the buyer could afford. This would mean that same mortgage repayment would buy a house priced at only $580,000."

This is a concern as levels of first home buyers remain particularly low and the affordability of Australia's homes has been called into question.

"What goes down inevitably goes up and while it is too early to say just when the Reserve Bank will increase rates it is worth planning for this possibility and considering options," said Mr Raimondo.

He concluded that planning could include fixing a loan, or part of a loan, while interest rates are low and buying a property before rates rise in the future.

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