What if we told you that now is as good a time as any to buy a property in Australia? “But interest rates are on the rise!” you might exclaim. Correct, but this doesn’t have to prevent you from buying a property.

It can be easy to fall victim to the doom and gloom being peddled by the media at the moment around interest rate rises. After all, nobody likes interest rates going up because it means carving a significant chunk out of our money. But we’d like to show you a few reasons why rising interest rates can work in your favour.

The benefits of buying now

There are three main reasons why buying now could work out in your favour.

Prices are on their way down

The crazy Covid ‘boom’ days have come and gone. They had to, really, because those over-the-top prices were simply unsustainable. Otherwise, where would it all end?

Happily (at least for buyers), real estate prices are coming down, maybe not to pre-Covid levels, but at least to more reasonable figures than they were at the height of the Covid real estate extravaganza.

Sellers have had to come to the realisation that their expectations now have to be lower. The market will always dictate the true price someone will pay for a property and while sellers were in a happy position of power through the pandemic, the dynamic has shifted.

As the market continues to change, sellers have to make a decision. Should they sell now and accept a lower price than they would have achieved in recent months? Or should they postpone selling, hoping that the market picks up, but potentially have to accept an even lower price? Or maybe they should reconsider selling at all, depending on their own comfort levels. Either way, the buyer tends to be the winner right now.

Loan approvals are faster and easier

The good news about the current property downturn is that potential home buyers are finding they can secure a loan more easily. Thanks to simpler policies and processes – due, in large part, to the pandemic facilitating more online interactions such as Zoom meetings – loans are being approved in half the time they were only six months ago, and the outcomes are more consistent.

As an example, around 35 percent of eligible NAB customers receive unconditional approval in under an hour.

Customers are also able to take advantage of banks’ loan repayment calculators and budget and planning tools. These make it much easier to know their financial position before applying for a loan or getting too attached to a particular property.

Now with all that said, the amount of money someone can borrow drops in proportion to the current interest rates. Of course, this isn’t a bad thing because nobody wants a loan they genuinely can’t afford. That’s like digging yourself a nice big hole and gradually falling further and further into it.

Since the cash rate started rising in May this year, potential buyers’ maximum loan sizes have been slashed by around 20 percent. The way the banks look at it is that interest rate rises are not predictable. As such, any customer’s capacity to repay their loans needs to be deeply scrutinised.

 

Rates are predicted to be cut again in 2023/2024

Ok so interest rates have been climbing with monotonous regularity for months and it can seem like there’s no light at the end of the tunnel. There’s some slightly more positive news, given that the RBA only imposed a 0.25 of a percentage point hike on 4th October 2022. It was the first time since May that rates have risen by less than 0.5 of a percentage point, a bit of an indication that the RBA has decided to slow down and take stock of the current economic situation. The RBA’s Governor, Phil Lowe says “there are lags in the operation of monetary policy and interest rates have increased very quickly”.

CBA’s head of Australian economics Gareth Aird, who had successfully predicted the small rate rise on 4th October, later said, “We expect a further 25-basis-point rate rise at the November board meeting.”

Mr Aird also released research last week showing that it takes, on average, two to three months for mortgage holders to really feel the increase in the official cash rate. With that in mind, it’s not possible to gauge spending behaviours until the rate rises ‘bite’. Only then will it be possible to determine what should happen next with interest rates.

As for the possibility of interest rates coming down next year, the RBA did say that inflation is “expected to peak later this year and then decline back towards the 2-3 percent range.”

Be smart when shopping for a home loan

Make sure you work with a diligent lender or mortgage broker who will establish a versatile loan that meets your needs. When interest rates fluctuate, you want to be able to take advantage of any decreases. For instance, this might mean that you have a split loan, one half of which is fixed and the other half variable.

 

Don’t subscribe to the ‘doom and gloom’

In any economic climate, every person’s financial situation will be different from another’s. It’s important that you run your own race. Arm yourself with facts and don’t fall victim to media sensationalism. The media would have you believe that you need to start eating straight from cans, cancel your TV streaming subscriptions immediately, and put the car up on blocks.

When you need information, go straight to the source: Reserve Bank of Australia (RBA).