Risky investment strategies on the rise
Friday, 27 Sep 2013•8 minute read
While low interest rates are tempting to borrowers, Consumer Affairs Victoria has warned homebuyers they must consider their long-term financial future after an increase in risky ventures.
“There’s more to calculating how much you can afford than just looking at current interest rates,” Consumer Affairs director Claire Noone said.
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The warning coincides with a report by the Reserve Bank of Australia that said the low interest rate environment was prompting people to take more risks with their investment strategies.
“While increased financial risk-taking is an expected outcome of lower interest rates, it is important that households understand, and appropriately account for, the financial risks they take,” the Reserve Bank’s (RBA's) Financial Stability Review 2013 said.
“Given that household indebtedness and gearing are still around historically high levels, continued prudent saving and borrowing behaviour would help support households’ ongoing financial resilience,” the RBA report stated.
Dr Noone urged property buyers to consider what they could afford in the long-term.
“Carefully assess your financial situation and desired standard of living, including any likely future changes, such as starting a family and interest rate rises,” she said.
Buyers were told they should also factor in costs such as conveyancing fees, loan establishment fees, stamp duty, GST and building inspection fees, she said.
“Using online tools such as loan simulators and getting independent financial advice could help avoid any nasty surprises,” Ms Noone said.