Will Property Prices drop with an increase in Interest Rates?

17th Nov, 2021 | First Home Buyer, Investor

In this article:
Our take on how a rise in interest rates will affect the property market.

There has been much speculation around what impact the measures introduced by Australia’s regulatory authorities have on the change in property prices. After a proposed increase in serviceability rates, there is a lot of discussion around the possible rise in interest rates and a consequent decline in property prices. Here’s our take on how these measures will affect the property market as well as existing and prospective borrowers.

Property Prices are a function of Demand and Supply.

The increase in property prices continues at a healthy pace because demand continues to outstrip supply. While there has been an increase in listings as per CoreLogic’s latest November 2021 report, they continue to be lower than the listing average for the past five years. Secondly, there may be some decline in the demand in the wake of an increase in interest rates, but it is unlikely to correct to such an extent that supply will be higher than demand.

Opening of borders

The current rise in property values has taken place in the absence of immigration. With the opening of the country’s border, the demand for housing is likely only to go up. In fact, this rise in demand may be strong enough to offset any decline caused by a hike in interest rates.

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Implementation of measures

Regulatory authorities usually implement measures in a phased manner after a few months of observation. In other words, if there’s an increase in interest rates, it will be rolled out in small percentage points followed by close monitoring of how the economy reacts. It’s unlikely that there will be a significant increase that will shock the economy. This approach will provide sufficient room for borrowers to plan for their next steps.

Impact on existing and prospective borrowers

While several experts have been wrong with predictions on how the property market moves, we can certainly rely on its performance over the past decade. Historically, the property market has been remarkably resilient, and its performance during the pandemic is a testament to this fact. So, if you are financially secure, have found the right property and are ready for the financial commitment, it’s best to not delay your purchase. If you wish to expedite your purchase process, do so without being reckless by relying on the professional guidance of a mortgage broker. If you are an existing borrower, consider making more significant repayments to pay off a larger portion of your mortgage at a lower interest rate. Here too, a mortgage broker can guide you on the best approach for your situation.

Mortgage brokers receive a commission from the lender when they settle a loan. Their services are therefore usually free for borrowers. Not only will mortgage brokers scope the market to find you the right home loan match, but they will also handle all your loan paperwork and keep you posted at every step of the application process.

Reach us for the best way forward as per your circumstances.

 

 

 

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