Why There’s No Reason to Panic About the Recent Cash Rate Rises
Are you wondering how the recent increase in cash rates is going to impact you? You’ve seen and heard a lot of talk in the media about interest rates rising, and you’re wondering how it’s going to affect your bottom line?
You can relax, you’re not alone.
Unfortunately, the recent media hype has got a lot of Aussie homeowners biting their nails and preparing for the worst. Many are feeling a bit jittery about their financial future, but we’re here to reassure you that there’s no need to panic.
Today we’re going to have an honest and open discussion about the recent cash increases and how they may interest you. We’ll look at some numbers, and check in on what the REIA (Real Estate Institute Australia) has to say about what’s happening.
Let’s look:
Have Interest Rates Risen Recently?
Yes. There’s no hiding the cash rate in Australia has risen, and sooner than many of us anticipated.
On the 2nd August, 2022, the RBA decided to raise the official cash rate to 1.85%, and although this hoist may be unwelcome news to many Aussie homeowners, it’s not altogether unexpected, and many financial institutions have planned ahead for it.
Are the Banks Prepared?
Yes. While many of us have just been making the most of the historically low interest rates, banks and other lending institutions have been preparing for this scenario. The majority of borrowers have been assessed to accommodate rises of up to 3%, ensuring that they are financially able to service their mortgages.
The reality is that the current cash rate is still well below what it was before covid. And according to Nicola McDougall, the chair of Property Investment Professionals of Australia (PIPA), the recent adjustments to the cash rate are ‘unlikely to impact the vast majority of homeowners’.
How will the Changes Affect Housing Affordability?
Are you a newbie who’s trying to get a foot in the door of the real estate market? And you’re afraid that your dream of home ownership is falling apart?
Well there’s certainly no need to push any panic buttons!
Housing affordability is a hot topic, and one that receives a lot of media attention, but what do the pros say?
According to Hadyn Groves, president of REIA, the current situation isn’t as bad as anticipated. He described the impact of the cash hikes on housing affordability as ‘modest’ and reiterated that lending associations have been preparing themselves for such an event.
Should You Be Worried?
There’s no one-size-fits-all answer to this question, but overall, most Melbourne homeowners can go on as normal when it comes to servicing their mortgage.
The reality is that if you purchased pre-Covid, you probably don’t have too much to worry about: the recent changes mean that interest rates will likely just return to what they were before the historic lows during the pandemic. If you could sustain it pre-Covid, then you should be ok now.
Many homeowners across Melbourne have taken advantage of the historically low interest rates over the last two years to get ahead financially by paying well above their minimum repayments. In fact, it’s estimated that the many homeowners are now as much as two years ahead in their repayments!
What Will the Increase in Cash Rate do to my Property Value?
According to the RBA (Reserve Bank Australia) the increase in interest rates is likely to have a flow-on effect to the value of property, and this obviously won’t be welcome news to homeowners.
If the interest rates continue to increase, this may undo the majority of the value rises we’ve seen over the past two years. For recent purchasers, this may be of concern but if you are a long-time local resident or purchased prior to this period, you should find your property’s value will be mostly unaffected.
So, How Can We Help You?
Our team at Love & Co are helping people in Melbourne’s North to find homes that suit their needs, tastes and their budgets. With three generations worth of experience behind us, we understand the cycle of increases and decreases; and have learnt the local property market inside out over 75 years of operation.
Whether you’re a first home buyer, a family needing to upsize or a retiree looking for something smaller, we can help you find something that ticks all the boxes!
The information in this article is for information purposes only and should not be taken as financial, legal or personal advice.
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