Data from the three major property price monitors all shows a significant jump in the price of an average home during the December quarter. It is almost certain that the RBA will take steps to intervene to try and prevent a housing bubble forming as a result of historically low interest rates. The question is whether interest rates will rise by 0.25 pts or 0.5 pts, our money is on a 0.5 pts so strong has the recent economic data been.
Although any rate rise is sure to be unpopular with homeowners (or would be homeowners) the Bank will not hesitate to take decisive action if it considers that there is the risk of a property price bubble that could be more damaging if it is allowed to expand only to burst in a year or two’s time.
It is important to recognise that current rates are still very low. Any homeowner looking to increase their level of borrowing or a new home buyer looking to take out their first mortgage would be well advised to allow a full 2.0 pt increase from where rates are today when calculating how much they can afford to repay.