Home buyers told build a buffer to better prepare for rate rise
Reserve Bank Governor Philip Lowe has advised Australian home owners to build up buffers so they are ready for when interest rates inevitably increase.
Dr Lowe remains vague on the timing of a rise in the cash rate, which remains at a record low 0.1 per cent, but says a move later this year is āplausible.ā
āInterest ratesĀ will go up,ā he told the National Press Club on Wednesday in answer to a question from the floor.
āWe need to be prepared for that. And people need to have buffers.ā
However, he said the positive news is that most households are paying off more than is required by the current level of interest rates, or they areĀ keeping money in their offset accounts and redraw facilities.
āSo thereās a lot of capacity for many borrowers toĀ keep their current level of spending even with higher interest rates because theyāve built up the buffers,ā he said.
Asked if people should be scrambling to get a fixed rate mortgage or sticking with a variable rate loan, Dr Lowe said it wasnāt something he has thought about as he no longer has a mortgage.
āIāve lived in my house for more than 25 years and over those 25 years ā¦ Iām in the fortunate position of having paid it off,ā he said.
Low interest rates have meant the cost of living pressures are less for people with a mortgage.
The consumer price index showed annual inflation running at 3.5 per cent, led by a 30 per cent increase in petrol prices in the past year.
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However, the Australian Bureau of Statisticsā selected living cost indexes released on Wednesday shows that price pressures vary between household groups.
Employee households had the lowest annual living cost increases at 2.6 per cent because mortgage interest charges fell 7.4 per cent in the past 12 months.
āLower mortgage interest charges continue to ease living costs for households with a mortgage,ā ABS head of prices statistics Michelle Marquardt said.
In contrast, age pension households had the highest annual living cost rises at 3.4 per cent due to rising food costs.
āFood makes up a higher proportion of overall expenditure for age pensioner households compared to other types of households,ā Ms Marquardt said.
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