After years of economic abuse and bruising, these Australians could have an advantage when the RBA raises rates again.
After years of prices out of the real estate market, the coming months could be the perfect time for aspiring home hunters to set foot on the doorstep of their first home.
Rising interest rates have slowed house prices, which have fallen 0.11 percent nationwide following a rise in the Reserve Bank’s cash rate in May.
And with all the signs pointing to a further rate hike after today’s monthly RBA meeting, first-time buyers have every reason to expect price growth to slow further.
Experts predict that interest rates could bring property prices down by 10 to 15 percent by the end of 2023 or early 2024, which could wipe out much of the 23.7 percent increase that they saw the capital’s properties only until 2021.
PropTrack economist Paul Ryan said aspiring homebuyers will find that rising interest rates, from the outside, are very helpful in achieving their property goals.
“First of all, house prices, which are growing more slowly than they have done, and we’ve seen that this year, or even falling a little bit, tend to help first-time home buyers,” he said. dir Ryan.
“First-time buyers are often limited by the large deposit they can save. So when the price level is high, saving 20% of that level can be more costly for them.”
He said it helps to avoid “rampant price growth … where prices are growing faster than people could save on deposits.”
“So getting things a little slower can be very helpful for these types of buyers,” he said.
More rate winners go up
But aspiring homeowners will not be alone in the circle of winners of the rate hike. Self-financed retirees with luxury savings accounts, investors and banks can also feel the benefits of the increase.
For borrowers and mortgage holders, especially those with partially repaid loans, the RBA’s efforts to curb inflation will not be a big boost, but they will not be devastated by them either.
People who have been refinanced in recent years, Mr Ryan said, “are probably well placed to pay higher rates again”, where they were before the pandemic-era rate cuts.
“Of course, we now have higher inflation, so there are more questions about the family budget,” he said. “So it won’t be ‘easy’ to quote without quoting, but they’ll also be better placed, because they’re usually households that have been paying off the loan for a few years.”
In addition, many homeowners have kept their pre-pandemic repayments at record interest rates, possibly accelerating their mortgages by two years, according to the latest RBA financial stability review.
Investors can get higher returns on their savings deposits as banks raise their rates to cover their net interest margins after the increase.
Banks and insurers, too, will feel the benefits of the increase, as long as their customers do not get into financial conflicts.
Who loses from a rate hike?
But while the rate hike will work to curb house price growth, Mr Ryan warns that they could return to hit first-time buyers on the way to their new homes. Carry.
Homeowners who bought property in the “last two years, when interest rates were low” will be the “big losers” in the rate hike.
“They may be the ones who will suffer the most shock just because, first of all, they are newer to their mortgage and have not had the experience of paying these higher rates,” he said.
When the RBA raised the cash rate from 0.1% to 0.35%, the all-time low in May was the first increase since 2010.
In 12 years, 1.1 million Australians have become homeowners and have never faced a rate hike.
But now they are facing two in as many months, and are dealing with a central bank committed to doing “whatever it takes to ensure inflation in Australia returns to the target over time,” as the governor said. of the RBA Philip Lowe in May.
Mr Ryan said dealing with the highest mortgage repayments with most of the debts young homeowners have ever had is one thing; but with the expectation that banks will tighten their lending standards in return, they may not even be able to borrow so much to go up for auction.
But it’s not as desperate as it sounds, he said, because lenders would have assessed borrowers ’ability to make higher repayments.
“Lenders have considered this repayment shock and incorporated it into their loan approval decisions,” Ryan said. “But still, I think it will be a bigger shock for younger and earlier households.”
Mortgage holders with variable interest rates and small businesses with large debts could also feel the pinch.