Rates holding but watch out: Westpac

Westpac is predicting that the Reserve Bank won't be raising interest rates until at least April 2003. But the bank also says that once this rise comes, there'll be a sharp increase: expect an official cash rate increase of 150 basis points, from 4.25 per cent to 5.57 per cent, by the end of 2003.

For homebuyers, a 50-basis point rise on a $300,000 mortgage, over 25 years at 6.07 per cent, means an increase of $93 per month on $1,948. On the same loan at 7.57 per cent, the monthly repayment would lift by around $285 to $2,233.

Westpac's Frank Allen, head of property markets, says that the demand in the residential market will taper off this year as the number of first-home buyers decreases.

Last year, the government's first home-owner's grant of up to $14,000 sparked a boom in mortgage lending, which is now lessening. The predicted interest rate hikes next year will also have a dampening effect on house-buying – for both owner-occupiers and investors.