Rising interest rates and falling house prices don’t have to be a cause for alarm for households. Overall, there are many things that you can do to prepare, like examining your financial position and not making unnecessary purchases on depreciable items like cars and furniture. You might be asking how or why rising interest rates affect property?

By taking a proactive approach, maintaining financial security, and shopping around for the best mortgage deals, you can weather rate rises and this transitional housing market confidently.

1. Home buyers 

From any home owner’s perspective, conventional wisdom says as mortgage rates increase, general affordability decreases. For example, let’s say Jack qualifies for a $400,000 mortgage at four per cent interest, but the interest rate increases to five per cent, the bank will offer Jack less than $400,000. The one per cent increase in mortgage interest rates doesn’t seem like much, but it decreases Jack’s purchasing power.

Consequently, Jack may need to find a cheaper, smaller property or shop for a lower-priced mortgage.


2. Sellers

If you’re considering selling your current home, rising mortgage rates will affect you, too – although differently. As mortgage rates go up, this could affect how quickly your house sells. Potential buyers may be more selective and consider properties with lower asking prices to compensate for the higher interest rate.


3. Effect on property value

Ideally, when the economy continues to grow rapidly, then mortgage rates don’t have as big an impact on house prices because strong job and wage gains counteract any rate increases. However, this isn’t what is happening in Australia now. As a result, rising interest rates are decreasing the amount buyers can borrow, which is pushing down property values.


4. Should you buy or sell?

Buying a house during a period when mortgage rates are rising isn’t necessarily a bad idea. Historically, a five per cent mortgage interest is considered relatively low. Remember that although interest rates may increase, they won’t always remain at their highest levels. When home prices are low and interest rates are comparatively high, this may present the perfect time to buy – giving you a shot at homeownership.

Alternatively, if you’re thinking of selling, rising interest rates mean your home may take longer to sell. We try to give advice to minimize these mistakes. But with some careful planning, market research and a loan broker by your side, you can make the best of a tough situation.

Whether you’re buying or selling the key is to be flexible, do your homework and stay alert to market trends to get the best deal possible. Overall, there is no need to fear rising interest rates and falling house prices if you plan and make smart financial choices, as well as think long-term.


5. Financial security

Firstly, make sure your financial situation is as stable as possible. For example, employment is your biggest asset, so make sure you have a secure job that will allow you to pay your mortgage comfortably. If you’re concerned about your job security, start looking for new opportunities and keep an eye out for any potential layoffs in your industry.

Next, keep an emergency fund available should unexpected expenses arise, such as maintenance, home repairs or short-term unemployment.


6. Review your budget regularly

Reviewing your inflows and outflows regularly (cash budgeting) will help you keep track of your spending and ensure that you are not overcommitting yourself financially. With recent developments with rising interest rates, there are ways to combat this


7. Make additional repayments when you can

Making even small additional repayments can make a big difference over the life of your loan. For example, in some circumstances, an extra repayment of $100 per month on a loan can shave years off the life of your loan. This doesn’t have to be paid into the loan directly; depending on your situation, you may be able to utilise an offset account to help save interest and reduce your loan term.


Lucy Ramunno
8. Shop around for a better deal

If you feel like you are paying too much in interest, it’s time to start shopping around for a better deal. There are plenty of competitive loans out there, so it’s worth speaking with a broker to ensure you’re on the best deal for your situation.

Need assistance, talk to us, showcasing our property tax accountant or need to talk to a loan broker, talk to Lucy Ramunno today.