Getting the best from your mortgage
Page 1 of 4 5:00AM Sunday June 17, 2007
By Stephen Cook
Homeowners are being warned to brace for more mortgage misery with predictions of a rise in interest rates to 12 per cent by early next year - the highest since the housing boom began.
With floating rates now in double-digit territory and fixed rates not far behind, the mortgage market is set for a bumpy two years, as the Reserve Bank tries to take some of the steam out of the overheated property market.
With $40 billion of new mortgages written last year alone, the stakes are high - especially with a third of those fixed-rate mortgages up for renewal in the next 12 months.
Add in the fact that household debt rose 3.7 per cent during the March quarter, outpacing gains in household asset values, and it's not surprising that economists such as Gareth Morgan are forecasting tough times for homeowners.
Morgan believes the Reserve Bank will continue increasing the official cash rate until the heat is finally driven from the housing market - which will lead to fixed mortgage rates of around 12 per cent heading into the March quarter next year.
The next rise in the official cash rate is tipped to be in September.
The Reserve Bank's decision to raise the official cash rate to 8 per cent - the third hike this year and the 12th since Alan Bollard started his credit squeeze at the beginning of 2004 - has already led to higher debt servicing costs, especially for those who have just managed to get a toe-hold on the first rung of the housing ladder.
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