RBA official warns of interest rate risk

A senior official from the Reserve Bank of Australia (RBA) has issued a reminder that Australians should not to take record low interest rates for granted.
 
Speaking at the CFA Institute Australia Investment Conference in Sydney yesterday, RBA deputy governor Philip Lowe issued a reminder that people looking to take advantage of the low rates on offer should be careful not to over extend themselves.
 
"People do need to be careful... debt levels can't keep rising faster than income," Dr Lowe said.
 
While Dr Lowe said people need to realise rates can quite easily rise, Joe Sirianni, director of broking firm Smartline, doesn’t believe a rate rise would have too big of an impact.
 
“It’s fair for the RBA to caution people and I don’t have a problem with that, but if you look at mortgage arrears and out of orders right now, they’re at really low levels,” Sirianni said.
 
“So at the moment I’d say we’ve got a pretty good base where investors and home owners will be able to handle a rise,” he said.
 
Sirianni also said that in most cases people, and their lenders, have taken steps to ensure they can service their mortgage if rates were to increase.
 
“I think most consumers do their calculations on a higher rate than what they’re actually subject to.
 
“The banks these days are pretty cautious too. They’ve got a buffer rate they apply and they factor in how rate rises will affect someone when they’re assessing mortgage applications.”
 
Though he said people need to be careful they’re not stung by rate rises, Dr Lowe said an apparent slowdown in price growth could help to mitigate some risk.
 
“It's too early to be definitive but I think we're on the cusp of seeing the supply response finally kick in, moderating price growth. And I hope that's the case,” he said
 
"Ideally we would now go through a period of quite modest house price growth. I think that would dim the risk of household balance sheets a little.”
 

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