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First homebuyers will be hardest hit by interest rate rise

First homebuyers will be hardest hit by interest rate rise

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.

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