Home loan rates 'will hit 10% by 2012'

Home loan rates will rise to a whopping ten per cent over the next two years, experts have predicted.

A report in the Sunday Telegraph at the weekend noted that the Reserve Bank (RBA) is committed to a policy of increasing official rates as a means of tackling dangerous inflationary pressures.

Macquarie Bank and Commsec, the Commonwealth Bank’s investment arm, both expect the official cash rate to hit "pre-crisis highs" of 7.25 per cent by 2012 if the economy continues its strong growth.

The newspaper noted that given the growing discrepancy between commercial rates and the RBA rate, variable mortgage rates could hit 10.1 per cent by 2012 – their highest level since 1996.

Rising rates have encouraged Australians to compare home loans, particularly as repayment costs soar. Last week, a report in the Australian suggested that mortgage costs could soon reach the peaks seen during the economic boom.

"The banks’ margin above the cash rate has crept up to almost 2.90 per cent," said Josh Williamson, chief economist at Citibank. "So the cash rate doesn’t even need to rise as high as last time (for mortgage rates) to hit double figures."

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