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    Mortgages to rise as interest rates go up
    May 8 2002
    The Reserve Bank of Australia raised official interest rates by one quarter of a percent today in what is expected to be the first in a series of increases over the coming months.

    The rate hike will add almost $24 a month to repayments on a typical 25-year, $153,100 home loan.

    Economists are also warning homebuyers could be paying almost $100 extra a month on mortgages by the end of the year if interest rates continue to rise as predicted.



    NAB lifts rate
    National Australia Bank today was the first of the major lenders to lift interest rates, saying it would increase its standard variable home loan rate by 25 basis points to 6.31 per cent from 6.06 per cent.
    NAB said the rate rises would come into effect from next Monday.

    Australia's biggest bank added that its base variable home loan rate would also increase from 5.56 per cent to 5.81 per cent.

    Other banks review rates
    News of NAB's decision came as two of the other major banks, Westpac and Commonwealth Bank, said they were reviewing their home loan rates.

    An ANZ spokeswoman said the bank was also reviewing its interest rates but was not expected to make a decision today.

    Fixed rate falls
    But while NAB moved to increase its rates, it also revealed it would lower its three year fixed rate from 6.79 per cent to 6.39 per cent.

    The five-year fixed rate will also fall from 7.29 per cent to 6.79 per cent.

    The bank said its fixed rates were at least 40 basis points below than the advertised rates of other major Australian lenders.

    ``In a rising rate environment, some customers may prefer the security and certainty of a fixed rate home loan,'' said NAB's general manager personal financial services Peter Flavel.

    ``We want to give them that opportunity to take advantage of market-leading low rates.''

    Rates to stay low, says Aussie's Symonds
    Major non-bank lender Aussie Home Loans managing director John Symond said he expected all lenders to pass on the rate hikes swiftly.

    ''(The rate rise) has been expected but I am firmly of the opinion that rates will still remain extremely low and I don't think that we will see significant increases in rates in Australia,'' he said.

    ``If we see increases of maybe three quarters of a percent maximum over the next 12 months, that will see us out.

    ``It's still good news for consumers - very low interest rates and so there's no need to panic.''

    Mr Symond said Aussie Home Loans was expected to make a decision on lifting its standard variable home loan rates, currently at 5.95 per cent, today or tomorrow.

    Inflation fear
    Mr Macfarlane said inflation remained close to the top of the RBA's target two to three per cent range but seemed to be levelling out.

    To persist with record low interest rates would risk amplifying inflation pressures and, over time, could overheat the housing market further, potentially jeopardising the economy's continued expansion.

    ``The board judged that an increase in the cash rate would reduce these risks and, therefore, enhance the prospects for sustained growth consistent with the inflation target,'' Mr Macfarlane said.

    The Housing Industry Association (HIA) however said rate rises were not good for the sector. ``The industry is already showing signs of a slowdown,'' HIA senior economist Simon Tennant told AAP.

    ``A series of interest rate rises will accelerate the slowdown in house building that we're already seeing.''

    More to come
    Westpac Bank's chief economist Nigel Stapeldon said: ``The quarter per cent rise was totally expected. The strength of the statement does suggest they have in mind another rise next month.

    ``They've highlighted the fact that the world economy is looking better notwithstanding the fact that some of the recent data from the US hasn't been quite as strong.

    ``It's bullish on the Australian economy, very strong to date and well placed to continue at a reasonably strong pace. Because they are more bullish on growth they are not as confident on the inflation outlook going forward.

    ``They've now highlighted the potential imbalances if the inflation in house prices continues. They would be looking for some of the heat to come out of it.''
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