Interest Rates at 10%

10% rates in my opinion are not that high.....its how much you borrow what is the key.........greed fuels greed so borrow wisely and invest wisely....

many say they have a portfolio of 3 million dollars worth of r/e or whatever...big deal..... when 2.5 million is owned by the banks...that you have to accommodate repayments for each month.....

having a large portfolio and up to your neck in debt doesnt guarantee your smart or wealthy.

live within your means and you will not go wrong.........live above it and you deserve to go broke in my opinion...
 
Always envisage what if's.........

Having lived thru the era where interest rates went from being teenagers to their coming of age and having their 21st (in percentage terms) :eek: I always stress test prospective purchases to the upside, as others have also indicated.

Whilst it (appears) to be unlikely that they will crack 10 %, it is a useful yardstick IMO to use for (approaching) worse case scenario servicibility. I'm not intimating they will go there, however nothing surpises me anymore.

Also don't just factor what the RBA does. They can sit on the sidelines for months and the banks will go on their own if they sense consenus in their appetite for movement upwards. The quadropoly are more able to do as they please in this tightish credit environment. :cool:

Today I'd be stress testing (resi) at 9 % and worse casing at around 10 %. Even if LVR's are conservative, servicibility must be very comfortable and with buffers built in. Cash (flow) is like oxygen, ya can't live long without it in this caper. ;)
 
avenger said:
I dont think rates will reach 10% while we still have problems in the US and Europe. But when I recently got my loan I made sure I could pay 10% as a buffer.

But it seems like the rising rates may not deter buyers:

http://www.smh.com.au/business/home-loans-on-the-rise-20100712-106hy.html
Click to expand...

in my opinion, your way of thinking is very correct.

Opinionise all you like, but MAKE SURE, you can handle the low probability events. Thats what seperates the long termers from the single cycle we come, we bought, we borrowed and we subsequently blew our capital.
 
i budgeted 8% for my serviceabiity when rates were thru the floor.

but as my charges haven't increased but my costs have -i'm stretched.

it'd be curtains at 9-10% now for sure.
 
While I wouldn't much enjoy it, I feel that I could cope with rates at 10%. Mind you, our kids have both now left home and Hubby is earning a decent salary (not overly large, but higher than the average income). We are also cf+ in our portfolio, which helps.
 
avenger said:
I dont think rates will reach 10% while we still have problems in the US and Europe. But when I recently got my loan I made sure I could pay 10% as a buffer.
Click to expand...

Agree, I just purchased my third property and have made sure I can afford to pay if my variable loans hit 10% (one of the mortgages is fixed at 5.19% which is of nice comfort). My friend laughed at me when I told him I had allowed for this, but when I bought my home in 2008 rates were over 9% so I don't think it's unrealistic or a bad idea to budget on 10%. Would rather be over prepared for the worst than under prepared!
 
Must admit I'm very surprised that lots of people seem to be unprepared for 10%. Gives me a lot of worries.. My personal thresholds:

10% - Annoying, but wouldn't affect me in the slightest
15% - Start considering maybe selling. Cut down a bit on lifestyle
20% - Holding on barely.. But can still meet repayments. Rents better be going up !!
 
Thrawn said:
Must admit I'm very surprised that lots of people seem to be unprepared for 10%. Gives me a lot of worries.. My personal thresholds:

10% - Annoying, but wouldn't affect me in the slightest
15% - Start considering maybe selling. Cut down a bit on lifestyle
20% - Holding on barely.. But can still meet repayments. Rents better be going up !!
Click to expand...

Same same. But looking at how much hurt their was at 9% last time. I dont think we will see 10%. If we did it would be for a very short time. I will not be locking rates this time no matter how many gloomers predict 15% + thats for sure.
 
You wouldn't think it would be possible for them to even consider something like 10% now, the costs would be catastrophic !
In one way we might have them by the short and curlies for once. Still , dunno if that'd stop them !

Cheers
 
you would be a mug to rule out rates hitting 10%.

it is definitely a possibility.

what would concern me is that at 10% many will bail the market, prices will slide further......rents will possibly drop as those renting suddenly bite the bullet and buy into the market...creating vacancies...its actually happened now in many regions forcing rent prices back down.

personally i think high rates for awhile are a healthy thing, it slows the market growth considerably therefore those that cant enter currently due to high housing prices are able to enter and this in itself will push up prices again slowly....

all speculation of course but the market needs to get back to proper normality.

five years ago you could have pitched a 3 man tent on a block and doubled your money overnight.

we most lightly will never see housing growth prices like the past 10 years again in our lifetime.....was great while it lasted but those days im afraid are long gone.
 
I doubt rents will drop. If rates hit 10%, landlords would pass on what they can onto their tenants. More FHB will be priced out of the market with the banks getting tighter on credit, putting more pressure on rents.
 
rents are geared to supply and demand, not just rates....

if theres a large volume of properties sitting vacant what would you do as a landlord? hold out at a high price or drop the price to cover your outlays.....obtaining 80% of your outlay cost by having a property filled is way better than living in fairly land holding out for 100% of nothing....

Nothing is set in stone when it comes to market forces and prices......
 
Thrawn said:
Must admit I'm very surprised that lots of people seem to be unprepared for 10%. Gives me a lot of worries.. My personal thresholds:

10% - Annoying, but wouldn't affect me in the slightest
15% - Start considering maybe selling. Cut down a bit on lifestyle
20% - Holding on barely.. But can still meet repayments. Rents better be going up !!
Click to expand...

well excuse me for trying to be realistic in my cashflow forecasts....:rolleyes:
 
However you need to consider what is the earliest feasible date for rates to hit 10%. Assuming you are paying roughly 7% (probably a bit under) then thats 3% to go. How quickly can rates rise 3%?

I struggle to foresee any situation where the RBA consistently raises rates by more than 0.25% every second month. That is 1.5% over the space of a year.

This could only occur if we had inflation above 3%, probably due to wage growth pushing 5% per annum. So over that two year period your salary is likely to increase by 10% and your rents by at least 6% if not more.

Regardless of those calculations, thinking about facing a 10% retail rate is a sobering thought. Facing an interest bill $12K+ a year higher isn't all that pleasant. I've got a decent cash buffer, but if rates stayed high for more than a year or two it would start to get nasty.
 
10% rates within 3 years aren't impossible - we had v. close to that 2 yrs ago. It's a risk that needs to be managed.

As others have said, high rates means that inflation will be high... so it's likely (your) wages will be rising fast & as will rents. And when the economy is strong & we have full employment, house prices are usually rising. They are all mitigating factors.

If 10% would cause serious stress, then watch for fixed rates rising from their current levels... as soon as they start to edge up, consider fixing part or all of your debt. Variable rates are usually more extreme than fixed rates (espec longer term) - they go higher at the peaks & lower at the troughs. The movement of fixed rates tends to be a good leading indicator of the direction of variable rates.
 
report last night on TV mentioned a macquarie study, said funding costs for banks is continuing to increase and they reckon they will be passed on independantly. there could easily be another rise or 2 this year by the RBA as well
 
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