Don't take low rates for granted, says RBA official

Wednesday 14 October 2015

Article by Mozo

RBA deputy governor Philip Lowe issued a reminder that people looking to take advantage of the low rates on offer should be careful not to over extend themselves. The senior RBA official was speaking at the CFA Institute Australia Investment Conference in Sydney, reported Your Investment Property.

"People do need to be careful... debt levels can't keep rising faster than income," Dr Lowe said.

Even while Dr Lowe said Australians need to remember that rates can rise easily and should not be taken for granted, Joe Sirianni, director of broking firm Smartline, doesn’t believe a rate rise would have too huge an impact.

“It’s fair for the RBA to caution people and I don’t have a problem with that, but if you look at mortgage arrears and out of orders right now, they’re at really low levels. So at the moment I’d say we’ve got a pretty good base where investors and homeowners will be able to handle a rise,” Sirianni said.

He also added that for most cases, people as well as their lenders have taken steps to make sure they can service their mortgage if rates do go up.

“I think most consumers do their calculations on a higher rate than what they’re actually subject to.

“The banks these days are pretty cautious too. They’ve got a buffer rate they apply and they factor in how rate rises will affect someone when they’re assessing mortgage applications.”

While he cautioned people to be careful they’re not hit by rate increases, Dr Lowe also said an apparent slowdown in price growth could help to mitigate some risk.

“It's too early to be definitive but I think we're on the cusp of seeing the supply response finally kick in, moderating price growth. And I hope that's the case,” he said

"Ideally we would now go through a period of quite modest house price growth. I think that would dim the risk of household balance sheets a little.”

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