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 "A lot has changed since the beginning of 2005. Interest rates have finally started rising, the property market has slowed, gained momentum and slowed again, and in general, everyone is nervously pondering their decisions that have lead to rather large mortgages in a uncertain market." - Mark |
| Mortgage Pains |
| By Alex May |
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March 10, 2005 Prestige suburbs will be hardest hit by this interest rate rise. Make no mistake: last week's rise in the interest rate by 0.25 percentage points is going to hurt some of Sydney's most aspirational suburbs. "There is a band of people out there borrowing $500,000 to $1 million," says Mark Bouris, founder of Wizard and the chairman of Australian Financial Investments Group. These people will be hardest hit by the rise, he believes. "We all know those people and they live in places like the eastern suburbs and drive a BMW but, at the end of the day, the rate rise on their $800,000 mortgage has a bigger impact on their net income than [on] the person who lives in Ashfield with a $200,000 mortgage." Australian Property Monitors research director Louis Christopher says residents of suburbs with a median house price of between $900,000 and $1.2 million will be the hardest hit - and he is forecasting house price falls of up to 8 per cent if another predicted interest rate increase happens in April or May. "It's going to be pretty much all of the lower North Shore, parts of the city and east, the expensive parts of the inner west and the northern beaches that will be hit," he says. "It's those areas that are just out of reach of the middle-income earner that a lot of people stretched to get themselves into." LandMark White NSW's senior research manager, Vanessa Rader, agrees, saying the higher-end suburbs are at risk of a correction in the event of small interest rate rises. Aussie Home Loans says last year's average loan in NSW was $253,000, compared with a nationwide average of $204,000. Wizard has calculated average loan amounts in different branch areas, finding Bondi has one of the highest average loan amounts of $362,000. Last year, Cronulla had an average of $318,000, Dee Why $298,000, Baulkham Hills $305,000 and Parramatta $222,000. "But averages mean absolutely nothing, because the mortgage someone has on a place at the back of Bondi is completely different to the mortgage people have on the beachfront," Bouris says. "That's why the interest rate rise won't hurt the average market; it's going to hurt ... specifically those people with large mortgages." Reference: Sydney Morning Herald website. 
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