In the lead up to the last federal election, one of Prime Minister Howard’s slogans was Keeping Interest Rates low. Since then rates have risen 5 times.
Today the RBA increased interest rates 0.25 per cent to 6.50. But does Interest Rates really matter, or is the actual size of your mortgage repayments more significant? In 1989 when interest rates were 17%, Australian’s had debts totaling 48% of their disposable income. Today, with massively inflated house prices, that figure has grown to 159%. So even though rates are low by comparison to the 17% experienced in the late 1980’s, people are spending more of their disposable income on mortgage repayments today, than they were in 1989. In 1989, about 5.8% of the average Australian’s disposable income was spend to service mortgage debt. Today its 9.3%, a increase of 60%.
So when the RBA put rates up today, the effect to your hip pocket is the same as if you where paying 27.2% in 1989. So is Howard’s claim just smoke and mirrors? Yes, rates are low, but personal debt is through the roof, and with that comes proportionally size mortgage repayments.
» RBA lifts interest rates to 10-year high – Melbourne Herald Sun, 7th August 2007.
» Banks raise interest rates – News.com.au, 10th August 2007.