Although rising interest rates are dominating the headlines and filling many homeowners with dread, what if we told you that these changes had a silver lining?
In a move that took many by surprise, June saw the Reserve Bank of Australia increase interest rates with a 50-basis-points or half a percentage point hike, taking the cash rate target to 0.85% – a figure well ahead of most economists’ expectations and predictions.
In addition, forecasts from the ASX predict some pretty hefty increases to the cash rate by the end of 2023. These predictions factor in an increase in the Reserve Bank’s cash rate from 0.10% to 3.5% by June 2023, which is enough to push up the standard variable mortgage rate from around 2.25% to 5.65%.
While rising interest rates is understandably concerning for homeowners with large mortgages or those already struggling with the cost of living, the flipside of these economic developments might actually leave some Australians better off.
Three Positive Changes Linked To Rising Interest Rates
As many Australians already know, interest rates are the main tool used by central banks to manage the rates of inflation. In layman’s terms, raising interest rates makes borrowing money more expensive, but it can also lead to more returns on savings and super, which earn interest on growth. When borrowing becomes too expensive, this can also mean less demand for goods and services.
For many Australians, rising interest rates means increased repayments on mortgages, loans and credit cards. With less disposable income, many people may need to tighten their belts.
Interest rate rises can be tough for families and small businesses, as increased mortgage and debt repayments can make life more difficult and expensive for those who haven’t taken precautions to protect themselves against such fluctuations.
Although many of us are grappling with inflation levels that are driving up the overall cost of living, rising interest rates can also have positive effects for those willing to keep an eye out for them.
Healthy Savings Accounts – While many people are quick to voice their concerns linked to rising interest rates and how they will potentially affect home loans, the upside is better returns on term deposits and savings accounts. For first home buyers doing their best to save money for a deposit, rising interest rates may not be so bad after all.
Healthy Property Market – As many house hunters already know, the Australian property market has seen skyrocketing prices in almost all corners of the nation. However, rising interest rates means that the market is finally starting to cool, especially in the inner city suburbs of Sydney and Melbourne with the highest margins.
Healthy Budgeting – When interest rates go up, it provides a unique window of opportunity for everyday Australians to assess where their money is going, and how they can get a better understanding of their finances. In addition, budgeting for rising interest rates also encourages homeowners to factor in any future changes, and to mitigate financial stress.
According to John Kehoe, Economics Editor of the Australian Financial Review, property prices in Melbourne and Sydney appear to be going down by 1% per month. If this trend continues, house prices in these cities could go down by as much as 12% over the next year – spelling good news for first home buyers.
However, if you already have a mortgage and aren’t feeling too confident about rising interest rates, keep in mind that there’s always a unique industry professional who’s ready to help. A mortgage broker acts as the ‘middleman’ between a lender and a borrower, and handles the time-consuming process of securing the loan and gathering the considerable paperwork involved.
Your Guide For Navigating The World Of Home Loans
With a background in banking, finance, business development and project management, there’s no better advocate to have on your team than Nikki Berzin. As a fully qualified mortgage broker and director of Cherry Lending & Finance, Nikki is passionate about all things finance, and empowering her clients with the tools to hit their property goals is what she does best.
If you’re looking to get into your first home, purchase an investment property or even want to look at your options for refinancing, the first step is starting the conversation. Get in touch with Nikki today, or call her directly on 0427 374 155 to bring your mortgage dreams to life.
Disclaimer: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product. Subject to lenders terms and conditions, fees and charges and eligibility apply.
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