First home buyer warning: prepare now for higher interest rates!

Australia’s leading financial comparison website is warning first home buyers to not get too comfortable with the low interest rate environment, following new figures showing a rise in the number of first home buyers hitting the market.

According to the latest data from the Australian Bureau of Statistics (ABS) the number of first home buyer home loans financed in September 2012 was 4 percent higher than September 2011.

Across Australia, there were almost 300 more first home buyer loans written in September 2012 (8,394) compared to September 2011 (8,098).

Despite a greater number of first home buyers in August (8,921) compared to September, RateCity expects to end the year with more first home buyer loans written than last year (93,084).

Prepare for rising rates

Michelle Hutchison, Spokesperson for RateCity, said it’s important for first home buyers to prepare now for rising interest rates.

“It’s great to see more first home buyers entering the market. Lower interest rates have made it more affordable to take on a home loan. For instance, RateCity found that it’s about $220 cheaper in monthly repayments for a $300,000 home loan compared to last year.

“But first home buyers need to be prepared for higher costs once interest rates rise. Those that entered into a home loan for the first time this year have never experienced rising interest rates, which can have a serious impact to your financial situation if you’re not prepared.

“Even if the Reserve Bank drops the cash rate next week or next year, it’s inevitable that interest rates will eventually rise, and borrowers should plan ahead to avoid financial difficulty,” said Mrs Hutchison.

Since November 2011, the Reserve Bank lowered the official cash rate by 150 basis points from 4.75 percent to 3.25 percent. The average standard variable home loan rate dropped from 7.31 percent to 6.19 percent, according to RateCity, which is a difference of about $220 per month for a $300,000, 30-year home loan (see table below).

Source:, monthly repayments based on 30-year loan term, rounded to the nearest dollar, based on corresponding average standard variable rates

“Borrowers should plan for a buffer of at least 2 percentage points higher than what they are currently paying. That is worth an extra $400 per month for a $300,000 home loan.”

“It’s a good idea to add the buffer to your home loan or offset account to minimise the impact of rising interest rates,” said Mrs Hutchison.


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Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit

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