Even though The RBA has come under intense anger from some for raising the interest rates for five consecutive months to 2.35% (despite saying last year that rates would be unlikely to increase until 2024), can there be a silver lining for home buyers?
While the rising interest rates might cause higher than expected mortgage payments to begin with, Reserve Bank of Australia Assistant Governor Jonathan Kearns, says that this could work in the buyer’s favour with approx 15% being slashed off house prices (and reducing a borrowers’ maximum loan size by around 20%.)
“Estimates suggest the net effect is that mortgage payments for new buyers would be higher for about two years as a result of higher interest rates,” Kearns told Reuters. “But after that, the declines in housing prices and mortgage size begin to dominate,” he added. “It suggests that because higher interest rates reduce housing prices and so mortgage sizes, mortgage payments for new borrowers could ultimately be lower than if interest rates had not increased.”
Lower house prices, a welcome break for buyers
Since the COVID boom, the Australian housing market has cooled quickly, as many expected it would. In fact, prices dipped across the nation by 1.6% in July from June (the biggest monthly drop since 1983!). So, this is great news for those in the market for their first home (along with the all the first home buyer perks and schemes that the government offer) if they’re in a position to buy now, knowing that their repayments are likely to drop in the next couple of years.
What has been your experience with clients in the broker world?
