Homeowners warned higher rates may be on the cards

Homebuyers who’ve used low interest rates to drive up house prices and taken on record levels of debt have been warned a steep increase in repayments may be looming.

The Reserve Bank has signalled it wants the official cash rate — currently at a record low of 0.1 per cent — to eventually climb to 2.5 per cent, but has played down the immediate threat of a rate rise.

Senior economics correspondent for The Age, Shane Wright, says “a lot of people are starting to put money … on rates going to go up, and going to go up sooner, and going to go up relatively quickly”.

If that happens, many recent homebuyers will see a massive rise in their mortgage repayments.

“The cash rate translates to an average mortgage rate of about 2.3 or 2.4 per cent at the moment, so add 2.4 per cent on that, you’re a bit shy of five per cent,” he said.

“The Victorian new average mortgage at the moment is $634,000.

“If you increase the cash rate by about 2.5 percentage points that translates into about $900 a month more.”

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