First homebuyers will be hardest hit by interest rate rise



article header

June 11, 2011

The Reserve Bank of Australia has warned that first homebuyers who purchased in 2009 with the assistance of increased government grants may be the hardest hit by the impending interest rate rise.

In an address to the Annual Stockbrokers Conference in Sydney, RBA deputy governor Ric Battellino expressed concerns that this particular group of home buyers were possibly over-committed financially and may struggle to meet their repayments if interest rates rise, which they most likely will before the end of the year.

Battellino referred specifically to areas of Western Sydney and parts of Queensland and Western Australia as hot spots for mortgage stress.

In late 2008, then Prime Minister Kevin Rudd increased the first homebuyers grant to $14,000 for established dwellings and $21,000 for new homes in an effort to buoy the economy during the global financial crisis.

“The concern is that some of these may have over-committed themselves financially in order to enter the market, and are now vulnerable to rising interest rates,” Battallino said. The RBA warning came on the back of data from the Fitch ratings agency which showed arrears on mortgage repayments spiked to a record high in the first quarter of 2011.

There is, however, some good news for those hoping to enter the property market. The Commonwealth Bank/Housing Industry Association affordability index revealed a slight improvement in the first three months of 2011. The index rose to 55.7 in the first quarter, up from 54.1 in the final quarter of 2010.

 

Related mortgage links

Advertisement

^Words such as "top", "best", "cheapest" or "lowest" are not a recommendation or rating of products. This page compares a range of products from selected providers and not all products or providers are included in the comparison. There is no such thing as a 'one- size-fits-all' financial product. The best loan, credit card, superannuation account or bank account for you might not be the best choice for someone else. Before selecting any financial product you should read the fine print carefully, including the product disclosure statement, fact sheet or terms and conditions document and obtain professional financial advice on whether a product is right for you and your finances.

Compare your product with the big 4 banks, or add more products to compare
As seen on