What’s the story with these interest rate increases?

It’s a question at the front of everyone’s minds at the moment. Much like the rest of the world, we are seeing inflation starting to creep, this is largely attributable to supply chain issues from the pandemic and recent floods and the war in Ukraine.

The Reserve Bank of Australia (RBA) duty is to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people. It does this by conducting monetary policy to meet an agreed medium-term inflation target. The RBA believes that the appropriate target for monetary policy in Australia is to achieve an inflation rate of 2–3 per cent, on average, over time and inflation at the time of writing is 5.1%. And no doubt, it sounds like a scary change – with all of the stories going around in the media, it can feel like the world’s falling to pieces. One of the biggest unknowns that springs from this is how the property market will react. So, let’s delve into it a little bit more, because no matter your position in the property market – renter, established owner, or looking for a first home, interest rates and property prices will have an effect on you.

First things first, it’s important to understand the direct link between interest rates and property. Whenever the RBA changes its cash rates, it leads other lenders, creditors and banks to shift their interest rates too, whether it be for savings or borrowing. Now, as the RBA has increased its rates by almost 1% over the last 2 months, this means that all of these other institutions will be doing something very similar – increasing their rates to align with the general changes. According to Mozo, it is currently almost impossible to find a fixed home loan interest rate below 3%, given the uncertainty of increases in the RBA’s cash rates. After a couple of years of VERY low rates, this might trigger warning bells in your brain.

So, how will the interest rate increase impact property prices? Ultimately, on the whole, this means loan repayments are on their way up, making it more difficult for buyers to afford a home, whilst remaining confident in their ability to be financially secure if rates continue to increase. This triggers a supply and demand change in the property market. Basic economics tells us that if demand goes down (because we’re less confident in spending money to buy a home) house prices will decrease. We have already seen this come to effect across some states in Australia in the past couple of months, with auction clearance rates slowing, and the dramatic property price increases of 2020 and 2021 doing the same. For first-home buyers who can find a good deal on their home loan, this will come as a breath of fresh air. With the right advice, and a team you can trust, you can feel your way into the market without the stress and burden of economic uncertainty. On the other hand, for those with established home loans, with rising interest rates there comes a time when looking into your options moving forward becomes paramount. 

At Rostron we are here to make your journey as smooth and stable as possible, helping you to find a better deal along the way. Would you like to know more about how interest rate increases will impact you, your property and your mortgage? Give Rostron Mortgages a call on 1300 70 70 39  – we’d love to chat!