Helping people buying their first home
Recently, the Reserve Bank of Australia (RBA) increased the cash rate to 0.85 per cent. The move is intended to combat rising inflation, which is currently at 5.1 per cent, a 21-year high. Although inflation had accelerated faster than expected, RBA Governor Philip Lowe said unemployment was low, and there was evidence that wage growth would improve.
There are strategies that anyone should take into consideration in the following months so that they can manage their finances properly.
A proper understanding of the effects of these changes will also be helpful in making better financial decisions, especially for those first home buyers looking to source a loan.
Who is the Reserve Bank of Australia?
Australia’s central bank is the Reserve Bank of Australia. The Reserve Bank Act of 1959 defines its role. The Bank is in charge of the country’s monetary policy and currency. It aims to promote financial system stability as well as the payment system’s safety and efficiency.
The Reserve Bank’s role and functions are governed by several pieces of legislation. The Reserve Bank of Australia is a statutory authority established by the Reserve Bank Act 1959, which gives it specific powers and obligations.
What is Inflation?
Inflation is the gradual loss of a currency’s purchasing power over time. The increase in the average price level of a basket of selected goods and services in an economy over time can be used to calculate a quantitative estimate of the rate at which purchasing power declines.
A rise in prices often expressed as a percentage, indicates that a unit of currency now buys less than it did previously. Inflation is distinguished from deflation, which occurs when money’s purchasing power rises while prices fall.
The question now is how high will mortgage rates rise?
With the latest rate rise of 0.50 per cent, the current standard variable rate for owner-occupied home loans on principal and interest repayments across the Big 4 banks is currently 3.74 per cent to 5.85 per cent, and if there is another rise of 0.65 per cent by the end of the year, these rates could well be 4.39 per cent to 6.50 per cent.
The RBA Governor has stated that the cash rate will rise to 1.5 per cent by the end of the year and to 2% by the middle of next year. However, the RBA will only raise rates as far as necessary to keep inflation under control, and rising household debt is likely to make rate hikes more effective.
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