Should you wait for interest rates to stop rising before buying?

November 21, 2022

Should you wait for interest rates to stop rising before buying? It’s the million-dollar question, quite literally.

Mortgage holders have already copped six consecutive rate rises. So is the sweet spot in the market just around the corner?

Let’s start by looking at the facts. For a typical housing mortgage balance of $500,000, October’s increase of 0.25 per cent will add a further $1250 in annual interest payments, or $100 per month.

Once fully implemented by lenders, the cumulative cash rate increase of 2.50 per cent so far this year will have added around $12,500 in annual interest payments, or $1040 per month in additional interest payments, on a typical loan balance of $500,000.

For buyers looking to utilise their maximum loan capacity, this means that the maximum size of the loan they can obtain will shrink by more than the likely fall in property prices, reducing the range of properties that they can consider for purchase.

RBA governor Philip Lowe hasn’t ruled out more rate increases in the future, either.

Buyers circling the market and wondering when to pounce should consider the impact of interest rate rises against their own borrowing limits, deposit requirements, and monthly budgets, says Property Exchange Australia (PEXA) chief economist Julie Toth.

“If buyers choose to hold off purchasing, home prices may fall further, however their maximum loan approval, at a higher interest rate, will also reduce,” she says.

“For first-home buyers who are renting, larger mortgage repayments [despite a smaller total loan], might still be preferable to the prospect of higher rental repayments.”

1
Photo: Peter Rae

It’s a sentiment shared by AMP Capital chief economist Shane Oliver.

“There’s possibly a case to delay purchasing as rising interest rates lead to falling prices,” he says. “People may find that they can pick up the property they want for a lower price down the track.”

Natalie Abel from Domain Home Loans says if someone wanting to buy has the borrowing power they need and love a property, then it’s a good time to buy.

Oliver points out that homes are getting cheaper, which means there are opportunities to buy.

“If a home owner is financially secure and doesn’t face the risk of losing their job and can withstand even higher interest rates from here, the key focus should be on price. If you wait a bit longer you may get lower prices, but by the same token, you don’t want to delay it too long,” he says.

“The rise in interest rates is also having the effect of subduing demand because people can’t borrow as much.

“So by the same token, you don’t want to delay purchasing too long if you’re in the market, because you can often find the bargains in this sort of environment. It’s certainly a better time to buy buying out there than it was 18 months ago when the property market was burning, so it’s a balancing act.”

“If home buyers want, they could risk having their borrowing power reduce as banks’ assessment rates alter,” she says.

The sweet spot of the market is the moment when you can service something you love, she says.

“Most people take out a 30-year loan term. It’s more likely that most borrowers will see another cycle [of rates rising and decreasing] over this period.”

There are measures that buyers can take now to give themselves peace of mind or some stability in a rising interest-rate environment, says Kareene Koh, general manager of Domain Home Loans. These include fixing your rate or even part-fixing your home loan.

“It is always good to plan for future rate rises either by building a buffer or fixing your rate,” she says. “The current guidance from the RBA is that the case rate will increase into 2023 so it is best to be prepared.

“Building a buffer into your repayment calculations before you buy, and leaving a savings buffer is a great way to start. You can also shop around for a competitive fixed rate if you want to remove the risk and have a bit of predictability.”

Koh says many buyers are getting their pre-approval now, before rates possibly rise further, to maximise their borrowing capacity in a falling market.

“They’re trying to take advantage of lower demand and falling prices,” she says. “For some customers, this is a great time to pick up a property that used to have three to four bidders and is now sitting on the market.”

Home buyers circling the market need to bear in mind that buying a home is not only a huge financial commitment, but an emotional one, too, Toth says.

“If a home is available that meets all requirements for now and into the future, buyers may wish to look past short-term price adjustments,” she says.

“It’s worth remembering that Australia’s housing market has demonstrated significant long-term price growth and resilience over many decades.”

Source: domain.com.au

You might be also interested in

Capi 1e0e766d2d5233a56cca5d4cd86b5710 09df85bc29deb103c8cadb5a2c2c7897
Cost of living: underinsurance effects 200,000 Aussies
Rising costs and affordability challenges has pushed Australia into an underinsurance crisis, which could cost homeowners hundreds of thousands of dollars when faced with disaster. In Australia, 13.1 million homeowners
VIEW POST
Gettyimages 908296490 88041054c55
Biggest surprises of Australia’s rental market revealed
In some parts of Australia, rents are bafflingly high, while in others, they’re surprisingly affordable. In some cities, it’s the areas you’d least expect that are showing the highest rental
VIEW POST
123
Higher for longer? The new cash rate paradigm
Research Director Tim Lawless unpacks what today’s cash rate decision means for the housing market. The interest rate outlook has changed remarkably in a short space of time. It was
VIEW POST
Capi Eaca2a4a670f7182c240bbb3ada7028a Dde6cc44b571f6374cf0e9f8edab769b
Rent crisis: Vast majority of Victoria now home to ‘extreme rental pain’, but silver lining for Docklands
More than three-quarters of Victoria is now in extreme rental pain after the state notched the second-fastest rent rises in the country across the past year. But there are signs
VIEW POST
Frankston 913595467e9
Why now is the time to invest in this unloved state, and where to buy
Victoria’s property investment prospects remain strong despite prices going backwards and an ‘outrageous cash grab’ by the state government that has prompted many investors to flee, according to property experts.
VIEW POST
Gettyimages 1222002808
Are higher interest rates forcing investors to sell up?
More landlords in Melbourne and Sydney are selling off their investment properties compared to a year ago, new research suggests. PropTrack data shows the estimated share of home sales in
VIEW POST
Gettyimages 1339766702
Rates on hold amid warnings housing boom could delay cuts
The Reserve Bank has held interest rates steady for a third straight meeting, but there are warnings Australia’s unstoppable property market could derail the prospect of a rate cut ‘anytime
VIEW POST
Rentingguide 1 990x540
Why are more Aussies choosing to rent?
With approximately 30% of all Australians now living in rental properties. According to ABS Census data, the rental population in Australia has grown steadily since 1991, while home ownership rates
VIEW POST
512 2 Joseph Rd061
Minimum standards in rental properties in Victoria
A rental property must be safe, secure, reasonably clean and reasonably fit to live in. That would be the least that most would expect, but it doesn’t end there. Legislation
VIEW POST
My Post 2021 10 26t091028.281
Tips for Managing Condensation
As the cooler months approach, it’s important to address potential condensation issues in apartments. Modern living habits, such as increased washing, drying, and appliance usage, can lead to higher levels
VIEW POST

Get your Free Property Guide.

Here goes your text ... Select any part of your text to access the formatting toolbar.

Get your free Sales Report for Should you wait for interest rates to stop rising before buying?

Get your free Sales Report for Should you wait for interest rates to stop rising before buying?

Subscribe to hear the latest

Start The Conversation Today.

Call us on:

1300 850 730

Request a Callback:

Send us a Message:

Privacy Policy

Get your Free Property Guide

Get your free Suburb Report for Should you wait for interest rates to stop rising before buying?

Privacy Policy

Who we are

Suggested text: Our website address is: https://motionproperty.com.au.

Comments

Suggested text: When visitors leave comments on the site we collect the data shown in the comments form, and also the visitor’s IP address and browser user agent string to help spam detection.

An anonymized string created from your email address (also called a hash) may be provided to the Gravatar service to see if you are using it. The Gravatar service privacy policy is available here: https://automattic.com/privacy/. After approval of your comment, your profile picture is visible to the public in the context of your comment.

Media

Suggested text: If you upload images to the website, you should avoid uploading images with embedded location data (EXIF GPS) included. Visitors to the website can download and extract any location data from images on the website.

Cookies

Suggested text: If you leave a comment on our site you may opt-in to saving your name, email address and website in cookies. These are for your convenience so that you do not have to fill in your details again when you leave another comment. These cookies will last for one year.

If you visit our login page, we will set a temporary cookie to determine if your browser accepts cookies. This cookie contains no personal data and is discarded when you close your browser.

When you log in, we will also set up several cookies to save your login information and your screen display choices. Login cookies last for two days, and screen options cookies last for a year. If you select “Remember Me”, your login will persist for two weeks. If you log out of your account, the login cookies will be removed.

If you edit or publish an article, an additional cookie will be saved in your browser. This cookie includes no personal data and simply indicates the post ID of the article you just edited. It expires after 1 day.

Embedded content from other websites

Suggested text: Articles on this site may include embedded content (e.g. videos, images, articles, etc.). Embedded content from other websites behaves in the exact same way as if the visitor has visited the other website.

These websites may collect data about you, use cookies, embed additional third-party tracking, and monitor your interaction with that embedded content, including tracking your interaction with the embedded content if you have an account and are logged in to that website.

Who we share your data with

Suggested text: If you request a password reset, your IP address will be included in the reset email.

How long we retain your data

Suggested text: If you leave a comment, the comment and its metadata are retained indefinitely. This is so we can recognize and approve any follow-up comments automatically instead of holding them in a moderation queue.

For users that register on our website (if any), we also store the personal information they provide in their user profile. All users can see, edit, or delete their personal information at any time (except they cannot change their username). Website administrators can also see and edit that information.

What rights you have over your data

Suggested text: If you have an account on this site, or have left comments, you can request to receive an exported file of the personal data we hold about you, including any data you have provided to us. You can also request that we erase any personal data we hold about you. This does not include any data we are obliged to keep for administrative, legal, or security purposes.

Where your data is sent

Suggested text: Visitor comments may be checked through an automated spam detection service.

Get your Free PDF copy of Make Money Simple Again