FHBs priced out of market as majors lift rates

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Less than 24 hours after the Reserve Bank announced its fifth 25 basis point increase to the official cash rate since October last year, all of the majors have indicated they will follow suit.

CBA was the first of the majors to move yesterday, waiting just over an hour before announcing its intention to match the Reserve Bank’s interest rate rise.

In a move that has pushed standard variable mortgage rates close to the decade average of 7.5 per cent, the Reserve Bank board raised the official cash rate to 4.25 per cent, well above the emergency low of 3 per cent reached during the depths of the global financial crisis.

The booming property market and a surge in export spot prices are to blame for the latest rate hike, with indications that iron ore and coal prices could jump by 80 per cent or more as new supply contracts are negotiated this month.

Treasurer Wayne Swan said the latest rate rise was yet another indication that the economy was strengthening.

“I know it is cold comfort for families and a lot of people in business, but that is the reality of a strengthening economy,” Mr Swan said.

According to Mortgage Choice, the rise in the cash rate will increase mortgage repayments $50 per month for the average $300,000 mortgage, pricing 2 per cent of first home buyers out of the market.

The brokerage’s senior corporate affairs manager Kristy Sheppard said the March rate rise saw 2.4 per cent of first homebuyers back out of purchasing in the next two years and April’s rate rise could see another 1.8 percent give up.

"The increase is definitely not a welcome outcome for these potential borrowers but it may be good news for investors and upgraders who are scouring the market for a good deal. Less competition makes purchasing property more attractive for these buyers,” Ms Sheppard said.

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