interest rates at 10% in two years

[Deltaberry]

If you look at things from a lending perspective, a number of the loans that were funded over the last couple of years were assessed at serviceability rates of between 7 and 8.5%. A large portion of 2009 saw an increase of first homebuyer activity. From personal observations, I would expect a great deal of FHB and borrowers in general to come into difficult times if they were forced to pay rates of 10% when coming from average rates of 6% or so. Some may adapt, but a lot wouldn't. The employment rate can be as low as it wants, but if people cant service their loans, I dont think the banks and the economy will be to worried about the employment rate.

A large number of loans were in arrears when we were paying 9% not to long ago. People were at the brink of losing a lot, retail spending had virtually come to a stand still.

The average loan amount is higher now than it was back then, so how the general community could cope with 10% for a couple of years beats me.

Most loans are pretty much assessed at 8.5% servicability these days. Factor in the 0.8% discount you get from banks, a bank is only lending to you if you can service approx 9.3% interest rates anyway...

 

[Aaron Sice]

high IRs normally equal high inflation to help erode the debt.

at the moment things are getting cheaper, though. i actually bought a telly (shock! horror! gasps form the crowd!) - 42in LCD. i put $100 deposit down before i went to bali. came back and it was $250 cheaper - price was adjusted and away i went.

how? why? WTF?

 

[VYBerlinaV8]

If true it just means the Financially "Smart" will get richer and the "Not so Financially Smart" will get poorer.

Im planning to be in the first group.

Cheers

Mick

The Financially Smart will usually get richer. And I too plan to be in the first group.

 

[Lickster]

Hmmm - whatever you think, don't base your forecasts on something out of News Ltd media. They are well known for their property crash, mortgage stress, rising interest rates stories.

Get back to the basics in books such as Jan's - take media stories with a grain of salt.