28 years since rates were at 17 per cent; are we any better off?

The RBA is set to leave the cash rate on hold when it meets next Tuesday – the 20^th consecutive decision to keep the cash rate at a record low of 1.50 per cent.

RateCity spokesperson Sally Tindall said that while sluggish inflation and wages growth figures had the RBA in a strong-hold, it was worth looking back at the state of play.

“The highest interest rate on record was in February 1990 at 17 per cent – a reality many Australians would rather forget.

“Now we’re living in a period of record-long, record-low interest rates.

“The key difference between 1990 and today is that average mortgages have risen nearly two times faster than wages.

“So, when it comes to paying down the mortgage each month, when you factor in the record low interest rates, we’re actually better off. But ask a first home buyer to stump up a 20 per cent deposit today, and you’ve got them snookered before they’ve even started,” she said.

Source: RBA lending indicator rates, ABS Housing Finance Australia, Housing Finance Commitments, ABS Average Weekly Earnings Australia – Original.

If a single person took out an average sized home loan in the 1990s when rates were at 17 per cent they would have spent 42.45 per cent of their income on mortgage repayments.  If they took out the same loan today with a lower rate of 4.50 per cent, taking into account house price increases and wages growth, the same person would spend 28.91 per cent of their income on mortgage repayments.

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