Are consumers really winning in this low rate environment?

by Julia Corderoy12 Aug 2014
Is the low interest rate environment fooling us into a false sense of security? Financial modelling conducted by the National Centre for Social and Economic Modelling for News Corp Australia shows that soaring house prices are offsetting any savings from low interest rates, and could lead to unsustainable mortgage repayments. reported that two or three rate rises could push mortgage repayments back to painful pre-GFC levels.

The new modelling shows that pre-GFC monthly repayments on the median priced Australian home were $2,750 – assuming a 90% LVR and a 30 year term. Currently, monthly repayments are $2,565 – despite the headline standard variable interest rate almost halving. Sydney, Melbourne and Darwin are already forking out more than they were six years ago.  

The low interest rate environment is pushing the prices of housing up, as demand to take advantage of the rock bottom home loan rates rises. 

Principal research fellow at NATSEM, Ben Phillips said consumers should focus on saving a larger deposit to soothe the sting, according to

“If you can easily pull together a decent deposit then low interest rates will help housing affordability. But if you don’t have much of a deposit then what you’re going to find is the low interest rates are pushing up the house prices so much that you’re going to struggle to get into the market… And of course, low interest rates just make it that much harder to save that deposit,” Phillips said.

Phillips did highlight the fact that factoring in increases in income, mortgage repayments as a percentage of household income painted a less depressing picture. 

Treasury secretary, Martin Parkinson, spoke out last month about his concern over Australian households being able to service their mortgage debts when interest rates begin to rise.