Thread: Interest Rate Rises

The Savings Pool is in the hundreds of Billions but the Mortgage Pool is in the Trillions.

So they are not passing on they same as they are collecting.

Even if they are paying more for money, they are paying less than they are paying out - so effectively the Reserve Bank is contributing to inflation as housing will now cost more.

Respected economists are now saying they got it wrong as Australians are paying more for essentials i.e. food & fuel thru no fault of their own, wage rises are not driving inflation.

Originally Posted by Arapiles

Problem is that if you've borrowed at 1% an increase to 2% doubles your interest repayments. Whereas, at 18% interest rates would've had to go to 36% to have the same effect..

I doubt that is correct.

Originally Posted by chuck

The Savings Pool is in the hundreds of Billions but the Mortgage Pool is in the Trillions.

So they are not passing on they same as they are collecting.

Even if they are paying more for money, they are paying less than they are paying out - so effectively the Reserve Bank is contributing to inflation as housing will now cost more.

Respected economists are now saying they got it wrong as Australians are paying more for essentials i.e. food & fuel thru no fault of their own, wage rises are not driving inflation.

It doesn't work like that. Yes, the increase in interest rates increases the cost of housing in the short term - but puts a major brake on the rising price of houses, which in the medium and long term is the principal factor in increasing housing costs. At least in theory, house prices will reduce to keep the repayments about the same (for new buyers). But in the short term it reduces inflation as more money is used for house repayments, demand for everything else is reduced, simply because if you are paying more on your mortgage, you have less money to spend on coffee, the latest iPhone, that overseas holiday, house renovations, new car etc, which places constraints on the purveyors of these increasing their prices.

Originally Posted by JDNSW

It doesn't work like that. Yes, the increase in interest rates increases the cost of housing in the short term - but puts a major break on the rising price of houses

FWIW,without getting political, IMHO,this should have been done months or even years ago.

It isnt something that has just occurred,house and land prices been out of control for probably a couple of years,now.

Sure Covid came along as well,and threw a curved ball at everything.

The problem with house prices is not only low interest rates. There are a whole range of reasons for house prices getting ridiculous.

And it is not a new issue. I can remember when my father was horrified at the price his sister had to pay for a block of land in Sydney - I think it was about $8,000. And pointed out that he had bought his seven acres (now an industrial area) for a thousand pounds, including a house, sheds, and working poultry farm (in 1939). It was sold for 20,000 pounds in 1959, and would probably be worth at least $12-15million today.

Watched an interesting clip on YT the other week.

I think it was this one. It's long but rather informative. 97% OWNED | FREE FULL DOCUMENTARY | Financial Power, Money Manipulation - YouTube

To paraphrase one of the statements - when a bank loans money, either as a mortgage or via a credit card, they are effectively 'printing new money'.