Survey shows homeowners suffer home loan interest rate pain
19/03/2012 
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The Reserve Bank of Australia may have left the official cash rate on hold at 6.25 per cent last week, but Australian homeowners are still suffering interest-rate pain and some could be forced to sell their homes, a NEWS.com.au survey reveals.
While rates have been kept steady this month, many analysts are still tipping a rate rise in May to stem rising inflation. Interest rates have been raised four times in the past two years and are sitting at a six-year high.
Higher rates are forcing people into financial hardship with a survey by NEWS.com.au and Coredata released today revealing almost one in three Australians would be forced to sell their home if interest rates rose by 1 per cent.
Just over half of the 3010 people surveyed in March – or 51 per cent – also thought their present financial situation was worse than it was 12 months ago.
Of property investors, 44 per cent said a 1 per cent rate rise would force them to sell their properties as mortgage costs got too much to service.
Indeed, repossessions of properties are expected to jump this year as a rising number of home owners default on mortgage repayments given higher borrowing costs, set against the background of falling or stagnant house prices.
Rate pain for households
While interest rates are lower than they were in the early 1990s, debt levels are much higher, meaning housholds are much more sensitive to interest-rate rises.
In a sign that upward pressure will remain on interest rates, 43 per cent of respondents expected house prices to rise over the next quarter – up from 25 per cent in the last survey in December.
In a sign that home sellers would also be hurt by rising interest rates, most respondents, or 57 per cent, thought home sellers would be forced to accept lower prices because of the recent rate rises and the threat of further rises.
Many Australians are finding it harder to make ends meet. A total 1 out of 4 respondents said they were just managing to make ends meet with their income.
A further 17 of respondents said they were running into debt, which was becoming more painful as interest rates rose.
Of those surveyed, 47 per cent said it was harder than expected to meet loan repayments.
Inflation eroding budgets
The RBA sets interest rates to keep inflation between 2 and 3 per cent. Over the year to December, inflation stood above that at 3.3 per cent. During 2006, inflation stood at a 11-year high.
Food and petrol prices are driving up inflation. Along with a rise in borrowing costs and rising rents, many people are finding it increasingly difficult to afford to buy a home or rent in Australia’s inner cities.
Source: NEWS.com.au
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.
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