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Rates to force down home prices

HIGHER interest rates will force people selling their homes to reduce prices while many people now report that their mortgage is worth more than their property, according to a poll.

Almost half the 2065 people surveyed in August by NEWS.com.au - or 48 per cent - expected house prices to fall in coming months, up from the 42 per cent in a June survey.

And for some, the bad news has already hit - almost one-third of respondents said the value of their home had fallen in the past twelve months.

Of those people who had seen the value of their property fall, one-quarter of this group indicated that their mortgage was now worth more than their home – or that they held “negative equity”.

The survey of readers was conducted by polling firm Coredata and NEWS.com.au on August 8 to 11.

Higher interest rates are hurting. Nearly 70 per cent of respondents earning less than $50,000 per annum said that the two recent interest rate rises in August and May had made paying their mortgages more difficult.

But home buyers may seal lower prices for property. The survey found 63 per cent of respondents expected the rate rises would force property sellers to accept lower prices.

If there was a 1 per cent rise in interest rates, 31 per cent of property investors said that they would be forced to sell their properties.

Around one-fifth of borrowers claimed that a 0.5 per cent increase in interest rates would significantly impede their ability to meet mortgage repayments.

This figure rose to 36 per cent if interest rates were to rise by another 1 per cent from the current position.

Australians believe the recent rises in interest rates and higher petrol prices have wiped out the benefit of the July tax cuts, and lower income earners are hurting the most, they survey found.

Indeed, 65 per cent thought the recent rises in interest rates and petrol prices had wiped out the benefit of the tax cuts which came into effect on July 1.

That response jumped to nearly 80 per cent of people when they earned less than $75,000 per annum.

The central bank in August lifted the official cash rate by 25 basis points to 6.0 per cent, a five-year high, following a rate rise in May. The rate rise took variable lending rates to 7.8 per cent, well above lending rates of recent years.

http://www.news.com.au/business/story/0,23636,20444403-462,00.html