Home buyers punished by rates rise

2 March 2005

Do your homework ... you have to be prepared to walk away when bidding goes beyond your maximum.

The Real Estate Institute of Australia (REIA) said the interest rate hike was not good news for home buyers, and punished those who were trying to get ahead.

REIA president Ian Wells said it was disappointing that the Reserve Bank had chosen to raise interest rates at a time when the housing market had softened.

"The signs are clear across the country - housing price growth, sales volume and demand have slowed," he said.

"In some cities, prices are flat."

Mr Wells said just when things were getting a little easier for first home buyers, the rate hike would be a setback for sometime.

"For the past two quarters, home loan affordability has marginally improved," he said.

"We have also seen an improvement in the numbers of first home buyers seeking housing finance.

"This will start to punish those people who are trying to get ahead financially."

While one 25 basis point rate rise was manageable for many, for others made it that much harder to enter the market, or to keep meeting repayments.

"In this case, on the average Australian home loan of $217,340, the interest rate increase will mean an increase in monthly payments of around $35," Mr Wells said.

"Home buyers should always factor possible interest rate changes into their budgets when purchasing a home."

However, while the rate hike was a blow to some, most Australians remained committed to buying their own home, Mr Well said.

"Owning a home gives people security and stability and is an essential factor in the high living standards we enjoy in Australia," he said.

"Additionally Australians traditionally have favoured property investment as a means of wealth creation, particularly as a basis for self-funded retirement.

"It is critical that governments do all in their power to make it possible for new generations of home buyers to aspire to the same dreams as their parents and grandparents before them."