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Mark was quick to quash the suggestion, made recently by commentators, that interest rates might continue to rise by a further 3%, saying: “For the reserve bank to increase rates by 3%…that is unheard of. That is 12 rate rises. I don’t remember ever seeing 12 rate rises in a row.”
Mark continued, “I would say this to all Australians: don’t panic! There is no way in the world, in my opinion, that we will get a 3% increase in interest rates, because if we continuously raise interest rates, we will pull property prices back so much that the whole country is going to put their hands in their pockets and stop spending.”
“The reserve bank is not going to put us into a recession; they’re not going to take that risk.”
What may occur in the coming months is a decrease in property prices. Mark said, “There has to be and that’s a good thing. That will claw prices back from the 30% increase we’ve seen in some areas. You can’t have a 30% increase in property prices in one year. That’s crazy. It makes property unaffordable. So yes, over time we will get a reduction in property prices” which will likely sit around a 10-15% decrease in value.
Interest rate rises naturally lead to an increase in mortgage repayments for those who already have a home loan. However, Mark highlighted that for over five years now, lenders have had to assess mortgage applicants on their ability to make mortgage repayments at an interest rate 3% higher than the rate the applicant is applying for. This is added protection for borrowers in the unlikely circumstance that interest rates drastically increase.
Further, Australia has one of the lowest rates of mortgage arrears and delinquencies in the world, meaning we are world leaders when it comes to repaying mortgages. So, according to Mark, there’s not too much concern amongst lenders.
As for Mark’s advice for those with existing home loans, he offered: “Most Australians would have borrowed money outside of the last 12 months, so whatever extra dollar you get, start making extra repayments now. ”
“If you’re paying monthly, pay fortnightly. If you’re paying fortnightly, pay weekly, and that’s because every time you make a principal repayment, the lender calculates how much interest you have to pay on that principle. So your principal is calculated every single day that you own a mortgage. The more payments you can make and the lower the principal is, the less interest you will pay, which means you will shorten the time you have the loan for.”
Tune into the full segment above to hear more of Mark’s analysis on property prices and how Labor’s recently announced housing policy differs from the Liberal Government’s policy.