RBA interest rates hike could pin back Gillard’s lead

Mortgage interest rates are never far from voters minds, and especially at election time.

Mortgage interest rates may go up during the election and that may affect the outcome, as homeowners feel mortgage stress even with low mortgage rates that we now enjoy.

So hearing outright lies about one or the other being the holder of the magic wand over mortgage rates is becoming a little annoying to the experienced, and like the way out of a tight spot to the gullible.

RBA to decide on interest rates mid election.

Both leaders will be tested mid campaign when the Reserve Bank board meets to consider whether or not to lift Australia’s official interest rate.
Most people don’t understand how rates are set, and why. And good economic management can cause rates to rise more than they can cause them to fall.

Interest rates can rise in Good economic times.

When the economy is performing well, full employment and rising wages will cause inflation.

The RBA’s cure is to raise rates to dampen demand and confidence. This is what happened in the Liberal Government tenure. But because John Howard said he could be trusted to keep rates low, and rates rose, the voters decided he could not be trusted. Making promises you can’t keep is a bad idea.
Under labor, we have an unemployment rate of 5.1%  and it could go lower, so we are in the realms of full employment in practical terms.

That has to be hard to beat, and the main cause the the 6 interest rate hikes was it was suddenly dropped to its lowest level ever, due to the Global Financial crisis, and, by hook or by crook, Labor have navigated Australia’s economy through the crisis without a recession.
And here’s the problem, mortgage debt is at all time highs because of near World high real estate prices in our Capital cities, and so even moderate interest rates are hurting families in the mortgage belts across Australia.
We did not have the recession, or the high unemployment, of the US, and the UK and Europe, and the Rudd Government took steps to protect homeowners from foreclosures.

That meant house prices did not fall, and increased the housing shortages, and that increased prices still further.

Interest rate dilemma

So I don’t feel that the election will be won or lost in Australia’s mortgage belt where mortgage interest rates are normal but causing stress.
In fact the banks have gained margins in their mortgage business, due mainly to the sub-prime mortgage collapse in the US, and how that affected their local competitors ability to get funding. The non bank mortgage business is still to recover lost ground, so the major banks may be enjoying higher mortgage margin rates for years to come. And that means that homeowners will be paying higher interest rates than they ought.

Rick Adlam: Mr Mortgage home loans

About: Rick Adlam: Rick Adlam has been helping clients with home loan finance since 1985 when he was home consultant with AV Jennings. Rick started Equity Home Loans in 1996 to help homeowners become property investors. Rick currently consults in the development of Mr Mortgage for mortgage brokers and HomeMate for new home buyers. Website: http://www.mrmortgage.com.au