In the last 12 months, interest rate and housing price has taken the roller coaster ride. Recently the RBA has increased the cash interest rates to 1.35% on home loans following the soaring inflation. The interest rates are further expected to increase as per the economists. Therefore, borrowers are advised to be ready for more interest rate hikes.
The interest rate hike will make the borrowers suffer, causing them to pay way more on their mortgages every month. On the other hand, analysts predict that the rise in housing market price will fall massively due to the massive interest rate hikes and can cool the red hot housing market of Australia.
As per the Corelogic, home value index has dropped for the second month in a row, after declining 0.6% in June. In Sydney, the housing prices were down by 1.6% and Melbourne by 1.1%. After the central bank announced the interest hike in May; most of the housing market around the country felt a sharp drift downwards except for Adelaide whose housing value increased by 1.3%.
On one hand the downward drift of housing prices might bring the housing affordability at some ease, but seeing the rising interest rates and inflations, it is easy to expect that the demand for housing might decrease. As per the Corelogic report, the high inflation and a higher cost of debt flowing through is leading to the less housing demand.
The annual housing market growth trend has also been decreasing from 22.2% peak to 16.7% over the recent period of 6 months. It is expected that it will face a sudden fall upto 10% in 2023 as per the estimation of HSBC. Also, the cash rate is expected to rise to 2.35% but not limited by the end of 2022 and the housing prices might face a fall of 5% to 10% in 2023. To sum up, we can expect the housing markets to be at a little ease, but the affordability and cost of living would still be at a higher range, decreasing the demand of the housing markets.
With the RBA announcement, almost all banks have increased their fixed and variable interest rates as of today and will continue to increase. In this case, It is difficult to decide whether we should be fixing the interest rate for a few years or go with a basic variable interest rate. With the fixed interest rates, the required repayment will be the same during the period of the fixed term, which will help you plan and stick to your specific budget. On the other hand, the variable interest rates provide more flexibility. There is a range of features which lets you customise the finances as per the changes in any financial circumstances. But since the variable rates can change any time, you must be well prepared for the higher loan repayments in case of a hike in interest rates up to 6.5%.
Current Interest rates for Owner Occupied:
| Tier 2 lenders | Rates |
| Lowest variable interest rate | 2.54% |
| 2 years Fixed interest rate (LVR<=90%) | 3.24 |
| Tier 1 lenders | |
| Lowest Variable interest rate (LVR>70%) | 2.74% |
| 2 years Fixed interest rate (LVR <=90%) | 4.84% |
It might be hard to decide the type of interest rates at times that suits your finances the best. There are various options for these, such as splitting your home loan. You can either do it in a 50:50 ratio or 60:40 or choose any other ratio suitable as per your financial circumstances. Normally, borrowers who prefer predictable payments, would prefer fixed rates, as the repayment schedule will have no alteration. The borrower who can keep track of interest rates and their hikes will go for variable rates, based on the estimated upcoming interest rate changes.
It is always a better idea to consult a mortgage broker, as they will guide you not only the best interest rate and products that suit your requirements, but also help you with your property research, inspections and others.
If you have any question or query related, feel free to contact Biz-box. We are always there to help.
Celebrate your home buying with us!
