October 2014

A number of factors signal that now may be the time to sell if you’re contemplating offloading property in the near future. The Reserve Bank of Australia has warned that surging house prices won’t last forever.

The RBA’s biannual Financial Stability Review highlights the risky economic environment Australia is in fuelled by record-low interest rates, strong competition among lenders and the increase in investor lending. It warns that the composition of housing and mortgage markets could result in it becoming unbalanced, and lending to investors is out of proportion to the quantity of the share of rental housing stock.

According to the review, the main risk from this strong investor activity appears to be that the extra demand may exacerbate the housing price cycle and increase the potential for prices to fall further.

And while the RBA elected to keep the official cash rate on hold at 2.5% when it last met at the beginning of September, experts are predicting that rates may start rising in 2015. Borrowers can expect a ‘new normal’ cash rate level of around 4% from next year, according to industry pundits.

As an example, variable rate borrowers with a $300,000 mortgage will be paying an additional $300 per month if the cash rate increases by 150 basis points. With this in mind, now may be a good time to for borrowers to take stock of their home loans and consider taking advantage of the competitive deals on offer.

AMP financial planner Tony Rigby says that rates on hold has meant steady-as-she-goes for home owners. “However, that won’t be the case forever as interest rates are cyclical. Now’s probably a good time for borrowers to review their overall debt position, get advice and determine whether they want to hedge their position a little by locking in some fixed rates,” he says.