As largely expected the RBA have increased interest rates by a further 0.25%. This has quickly been passed on by most lenders.

As I have stated many times before nobody likes interest rate rises but a few small rises now will hopefully insulate us from larger rises down the track. Rates were always going to go up and we will still likely see 2 or 3 more rises this year which will bring us closer to average long term trends, but remember this – as interest rates rise, so do property prices and so does your rental returns.

Property prices in the major capital cities continue to strive forward at a great pace and this is one of the reasons the RBA have started to put the brakes on rates with one of the likely affects being that in the coming months we will go back into a more sustainable moderate rate of growth in housing prices. The demand for housing will tend to outstrip supply for years to come given the rate our population is growing and the fact that currently the country simply has an increasing demand for homes and given current construction rates, are behind the supply demand. Prices are likely to continue to grow, even if this is at a lesser pace than we are currently seeing.

For those of you who are currently in the market you will have likely seen the value of your property rise over the past six months, building you a good equity position. At these times it can be tempting to borrow further against that equity for further personal purchases such as cars, holidays, boats, etc. Please be cautious of this as I see many people do this and forever continue to erode the equity they build.

Do the opposite, instead of using this for ‘Lifestyle’ purchases why not look at trying to invest and help your future situation by building wealth rather than eroding it. It may mean that you don’t have that instant gratification of a new car or plasma TV, but you will be helping build a solid future for yourself.

I’ve popped the link below to the RBA announcement if you would like to read it.

Till next month.

http://www.rba.gov.au/media-releases/2010/mr-10-06.html