How Higher Interest Rates May Effect the Sutherland Shire Housing Market

With the Reserve Bank of Australia set to increase interest rates in the coming months, there is speculation about what this could mean for the housing market. Many people are wondering whether or not prices will come down, and whether it will be harder to get a mortgage. In this blog post, we take a closer look at how higher interest rates could affect the Sutherland Shire’s housing market.

After record low interest rates, the Reserve Bank of Australia has warned it will continue to increase interest rates throughout the year and into 2023. The RBA has said that the decision to raise interest rates has been based on their assessment of the economy and the current high inflation environment we find ourselves in. 

What does changing the interest rate actually do?

The RBA is essentially where banks get their money, in order to loan it to you at a higher interest rate. So when the RBA changes their rates, it usually means that banks will offer you a higher interest rate on your mortgage. This in turn means that your repayments will be more each month.

If you have a mortgage, or are looking to purchase a house, the change in interest rates will directly affect your repayments each month. For every 0.25% increase in interest rates, your repayments will go up by approximately $40 per month for every $100,000 you have borrowed. This means that if interest rates were to rise by 0.75%, your repayments would increase by $120 per month.

See below for simulated interest repayments on a $650,000 loan

Interest RateInterest Repayments per year
2%$13,000
2.5%$16,250
3%$19,500
4%$26,000
5%$32,500

You may ask, Why would the RBA purposely make home loans more expensive?

The RBA has said that they are concerned about inflation, which is currently sitting at around 6.1%. By increasing interest rates, the RBA is hoping that this will slow down inflation and prevent it from rising too high. Read more about Interest Rates in our Helpful Mortage Insights Article.

What is inflation and why is it a bad thing?

Inflation is when the prices of goods and services start to increase. This means that your money starts to become worth less, as it can’t buy as much. Inflation can be a good thing if it’s low and stable, but if it’s too high, it can cause problems.

When inflation is too high, people may start to feel like they can’t afford things, even though their income has not changed. This can lead to people spending less money, which in turn can lead to businesses making less money. If this happens on a large scale, it can lead to an economic slowdown and potentially a recession. There are fears that a recession is definitely on the table, and that other countries such as those in Europe or the United States may already be in one.

What effect may higher interest rates have on the housing market in Sydney?

While it is unlikely that we will see widespread defaults on mortgages, it is possible that we may see a slowdown in the housing market. This is because people will be less likely to purchase a home when they know that their repayments will be higher. We may also see prices start to stagnate or even fall slightly, as people become more cautious with their money.

Of course, this is all speculation at this point and only time will tell how high interest rates will go and what effect higher interest rates will actually have on the Sydney housing market. We have broken down below a few effects that may occur as interest rates increase.

We will likely see a slowdown in housing growth

At Least 3 of the 4 big banks have projected a housing price slowdown for 2022 and 2023, with some even projecting a fall in prices. While the banks have been wrong in the past, it is only natural, that with higher interest rates, people will be more cautious when it comes to purchasing a home. This is especially true for first time home buyers, who may find it difficult to obtain a loan with higher interest rates.

There may be an increase in the supply of homes to purchase

Property as an investment, becomes less attractive when interest rates are high. This is because property investors rely on capital growth and rental income to make a return on their investment. With higher interest rates, this return becomes less attractive and may prompt some investors to sell their properties. This in turn may provide more choice for home buyers who are looking to purchase a property.

The cost of servicing a mortgage will undoubtedly go up.

If you’re looking at purchasing a home, you’re probably looking forward to seeing a decrease in prices. However, with higher interest rates, the cost of of your repayments on your home loan will increase. This means that you will need to be extra careful when budgeting for your home loan, as a small increase in interest rates could have a big effect on your repayments.

There may be an increased demand for apartments over standalone houses.

As the combination of both inflation and higher interest rates takes it’s toll on the economy, people may start to reconsider their housing options. We may see an increased demand for apartments, as they are generally more affordable than standalone houses.

While it is still deemed unlikely that Australia will enter a recession, Apartments prices usually see an above average return during one.

Your borrowing capacity may be reduced.

If you’re looking to get a home loan, your borrowing capacity (the amount the bank approves for you to borrow from them) is likely to be reduced. This is because lenders will assess your ability to repay the loan at a higher interest rate, which may mean that you won’t be able to borrow as much money as you could have previously.

That’s why it is so important to receive pre-approval for your home-loan, before you start sending offers to purchase a home. This way you know exactly how much you can afford to borrow, and what kind of property you can purchase.

New Homes May Cost More To Build

While the main reason rates are increasing is to slow inflation, it does take some time to take effect. With the current inflation and material shortages, new home prices have been steadily increasing.

This may cause builders to put their projects on hold as it becomes unprofitable to build, or we may see an overall increase in the cost of to build a new home. Sometimes, Builders & Developers may even become insolvent.

So how will this effect the Sutherland Shire Housing Market?

While many lenders are indicating that they expect a housing price slowdown or even a fall, this varies by region. The Sutherland Shire is still seen as a location with very strong demand.

It’s important to remember that while interest rates are one factor that can effect the housing market, there are many others at play. Such as immigration levels or wage growth. So it’s impossible to say definitively how higher interest rates will effect the Sydney housing market. We will just have to wait and see what happens.

It’s also important to remember that different suburbs will be effected in different ways. For example, homes near the beach, may be less likely to decline in value as it is commonly seen as a more desirable place to live.

I want to buy a home in the Sutherland Shire soon, what can I do to be prepared?

Purchasing a home is a big financial decision, so it’s important to be as prepared as possible.

If you’re looking to buy a home in the Sutherland Shire, or anywhere else in Sydney, the best thing you can do is start saving now. The more money you have saved for a deposit, the easier it will be to get pre-approval for a loan, and the more choice you will have when it comes to finding a property.

It is also a good idea to engage with a mortgage broker, who can help you understand the current market and find a loan that suits your needs. As well as give you a better indication of how much you will be able to borrow, and the cost of servicing that loan.

Property can be a fantastic way to build long-term wealth. But it’s important to remember that the market can go up, as well as down. So make sure you do your research and seek professional advice before making any decisions.

Catalyst Wealth Group has assisted many clients in growing their wealth through property investment. Our trusted mortgage brokers have a wealth of experience and knowledge in the Sydney housing market, and can assist you in finding the right loan for your needs. Get in touch today.