Interest rates- how they’re likely to affect property.
For 30 years, property investors and home owners have watched interest rates track down to their lowest level on record.
Now that rates are set to rise, what will the impact on the property market be?
That other affordability
Lower rates are good for property because they reduce the cost of owning, encouraging people to bid up on auction day.
While that logic may suggest rising rates will burn property, the evidence suggests otherwise.
Rates are only likely to move up by 0.5% this year and much analysis suggests they won’t have to move much higher to kill off inflation.
That leaves borrowers with a mortgage interest burden which is decidedly cheap compared to recent history.
Add to that equation; most households have taken advantage of low rates to pay down debt and are in a robust financial position.
Some prefer higher rates
Some borrowers will actually look forward to higher rates.
For many landlords who bought years ago, their properties are positively geared; with income exceeding borrowing costs.
With rates moving higher, some of these six hundred thousand investors will be able to claim a tax benefit for the first time in years.
Challenge, but not a crisis.
Yes, higher borrowing costs will impact the property market, but I don’t see a crisis brewing.
Most households are in a strong position and will weather rises. On top of that, the Reserve Bank of Australia and whoever is in government after the election will not want a housing crisis on their hands and will be wary about seeing rates move too high, too quickly.
What is likely to happen is poor investments, like high rise apartments and urban fringe housing, will experience challenging times.
On the other hand, the owners of well selected property are unlikely to face real difficulty.
Author; Miriam Sandkuhler
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