The reality of mortgage interest rates increases for home-buyers and businesses have been left to count the cost after a rise in official interest rates.
The Reserve Bank of Australia this week put the cash rate up 0.25 per cent to 6.5 per cent, the highest level in over 10 years.
Economists say the mortgage rate rise will translate to a rise of nearly $40 a month for Australians holding a $250,000 mortgage.
The first election-year rise since the Reserve Bank became independent sparked a war of words between the Government and Opposition.
In a rare joint news conference, Prime Minister John Howard and Treasurer Peter Costello used the news to put pressure on Labor over its economic credentials. [deflecting any questions of him breaking promises to homeowners and home buyers that rates woul remain at record lows.
"What this decision does is to place economic management once again front and centre in the political debate in this country," Mr Howard said.
Mr Costello said mortgage rates would still be lower than at any time under the former government.
He said the standard variable mortgage rate of 8.3 per cent was 4.5 per cent lower than the average under former Labor prime ministers Bob Hawke and Paul Keating, and "less than half of the notorious 17 per cent".
"The official cash rate of 6.5 per cent is lower than it was when this Government was elected and that is after 11 years of growth and 2.1 million new jobs," he added.
But Opposition Leader Kevin Rudd accused the Government of being out of touch and said the rates rise was a worrying development for households across Australia.
He said households were also being squeezed by rising petrol prices and the high cost of groceries.
"Working families are already struggling to make ends meet, particularly when you count nine interest rate rises on the run," he said.
Mr Rudd sought to deflect criticism of Labor's economic credentials, promising that a Labor government would maintain a Budget surplus and make fewer spending commitments than the Howard Government.
His treasury spokesman Wayne Swan accused the Government of losing touch with the reality of working families.
"A lot of families will be sitting around the kitchen table tonight wondering how they're going to make ends meet," Mr Swan said.
"On a day when they should have been explaining why they broke their interest rates promise, they stood there patting their backs," he said of Mr Howard and Mr Costello.
Greens Leader Bob Brown blames the Prime Minister for the rates rise.
"John Howard has given the average income earner in this country increased interest rates, while the wealthy got the tax cuts and it's not a good bargain," he said.
Default warning
Meanwhile the rise sparked a warning that many Australian families will lose their homes as they fail to keep up with mortgage payments.
David Imber from the Australians for Affordable Housing lobby group says many people will now be forced to default on their mortgages.
"We've already seen default rates double across Sydney and we know that it's spreading right across the country," he said.
"Mortgage defaults is the absolute worst sign of the housing affordability crisis for people who own their home.
"But of course in the rental market we've got hundreds of thousands of Australians who can't even afford to make it up to that opportunity to be able to purchase their home and we're very worried for them."
Housing Industry Association spokesman Ron Silberberg says any contention that there is not widespread mortgage stress reveals a callous indifference to the plight of many people.
"Particularly first home buyers that came into the market when house prices were increasing very rapidly in the the belief that interest rates would be stable," he said.
House prices up
In another blow for new homebuyers, there has been an increase in house prices across the country.
Figures released by the Australian Bureau of Statistics show there was a 9.2 per cent rise in home prices over the year to June and a 3.2 per cent increase in the quarter.
Of the capital cities, Brisbane and Perth recorded the biggest rises over the year with prices increasing by more than 15 per cent.
Australians are also borrowing more for housing with a 9.2 per cent increase in the value of home loans for the month of June.
Loans to investors also increased at a much faster pace than loans to owner-occupiers.
Banks plan rises
The big banks are yet to say how they will pass on the official rate rise to customers.
ANZ Bank chief economist Saul Eslake says the Reserve Bank is trying to rein in consumer spending and keep inflation in check.
"For home borrowers, this announcement means an extra $16 a month for every $100,000 of mortgage outstanding," he said.
"So, for example, someone with a $250,000 mortgage would be looking at close to $40 a month by way of extra mortgage repayments."
ANZ spokesman Paul Edwards also says it is inevitable there is going to be a flow-on to home-lending rates.
"But we'll take a few days to digest the change and work out the flow-on to our various products," he said.
Westpac also says it is inevitable its lending rates will go up. The National Australia and Commonwealth Banks say their rates are under review.Source: ABC
