The lowdown on the latest rate rise

28 March 2023 | Investment

News of the recent record tenth consecutive rate rise is in the spotlight, whether you have a mortgage or not. Interest rates are at their highest level since mid-2012. On 7 March, the Reserve Bank of Australia raised the cash rate by 25 basis points to 3.6%.

To put this in perspective, the recent increase will add $78 per month to a $500,000 mortgage. It may not seem like a lot on its basis but with consecutive increases, it does add up to cause a financial burden. For instance, if we look at the rates in May compared to now, on a $500,000 mortgage you would be paying $1,048 more per month today. Particularly for variable rate loans, this does add pressure to mortgage repayments. For the 35% of Australian borrowers on fixed rates, they may remain protected, but it’s expected that when these fixed rates roll over, they will feel the same financial burden. So what’s next?

There are a lot of different predictions out there. Some economists are saying although it may be the 10th increase, ‘the peak may not be far off.’ It’s important to remember this has been done in a bid to drive down inflation. Australia is currently facing the highest inflation since the 1990s, which has been triggered by a multitude of things, but the largest to consider is COVID-19. We did see a drop in monthly inflation for January, it’s possible that we’re nearing the worst. So, what does it mean for you?

Well, your situation is different from the next person’s. We’re still seeing buyers in the market, but it’s a very different landscape from what we saw during peak COVID-19 times. This makes it an opportune time to buy if you are looking, with less competition in the market. Particularly if you’re buying an investment, rental demand is at all-time highs nationwide.

It’s particularly a nervous time for first-home buyers, with banks retracting pre-approval given just a couple of months ago. Some experts are predicting further rate rises yet to come and looking at the long-term picture, Melbourne house prices have had the steepest increase in Australia over the last 30 years. So, if you are looking to enter the market, despite recent rises, if we go by past 30-year trends you’ll still be in an ideal position to do so if you are planning to hold the asset for a number of years. That is why we’d caution people in this position from ‘holding off’ to see what happens with interest rates.

Ultimately, it’s a case-by-case consideration. Getting the information relevant to your situation is going to arm you with a strong strategy, despite what happens with interest rates. It’s something we largely can’t control, but we can make assumptions. We’re seeing this current market presenting favorable opportunities for both buyers and sellers, you just need to be calculated in your approach.

If you’re looking for advice, or simply would like to chat in more detail about what interest rates mean for you, our team here at MPG are informed and ready to help with your next property move.