Understanding the impact of interest rate rises is crucial for property buyers or anyone with a mortgage. Here’s what rising interest rates mean for you:
1. Higher Monthly Mortgage Payments
- How It Affects You: When interest rates rise, your lender will typically increase the interest charged on your loan, leading to higher monthly payments. If you have a variable-rate mortgage, your payments will fluctuate with rate changes.
- What You Can Do: Review your budget and ensure you can afford potential increases in your payments. Consider fixing your interest rate if you anticipate significant rate hikes.
2. Reduced Borrowing Power
- How It Affects You: Higher interest rates reduce your borrowing capacity. When rates rise, lenders assess your ability to repay the loan based on higher potential interest costs, which can limit the amount you’re able to borrow.
- What You Can Do: Be mindful of your borrowing limits and consider looking at slightly cheaper properties to account for the reduced borrowing power.
3. Impact on Housing Market
- How It Affects You: Rising interest rates can cool the housing market as higher borrowing costs deter potential buyers. This could lead to slower price growth or even price declines in some areas.
- What You Can Do: Stay informed about local market conditions. Slower price growth can provide opportunities for buyers, but it also means you need to be cautious about overpaying for a property in a falling market.
4. Increased Focus on Savings
- How It Affects You: With higher interest rates, more of your income goes toward paying off interest, reducing your ability to save or spend on other things. It also highlights the importance of having a larger deposit to reduce the loan amount.
- What You Can Do: Prioritize building up your savings before purchasing. The larger your deposit, the less you’ll need to borrow, making you less vulnerable to rising rates.
5. Opportunity for Fixed-Rate Mortgages
- How It Affects You: If you have concerns about future interest rate rises, locking in a fixed-rate mortgage can provide stability by ensuring your repayments remain consistent over a set period, regardless of market changes.
- What You Can Do: Consider whether a fixed-rate mortgage is a good option for you. It provides certainty and protects against further rate increases but might come with higher initial rates compared to variable loans.
6. Effect on Investment Properties
- How It Affects You: If you own or plan to buy an investment property, rising interest rates can increase your financing costs, which may reduce your rental yield or cash flow.
- What You Can Do: Re-evaluate the potential returns on investment properties under higher interest rate scenarios. Ensure you’re not over-leveraging, and look for ways to increase rental income or reduce other costs.
By staying informed and adjusting your financial strategy, you can better manage the impact of rising interest rates on your home-buying journey or existing mortgage.
Please take note of your goals, objectives and risk tolerance. Borrowing to purchase a property comes with a large commitment and consequences if you can’t maintain your loan obligations.
There are many advantages to borrow funds to buy your home or investment property, so we recommend seeking professional advice. A mortgage broker and/or solicitor are great resources for you.
What to do next?
At Crest Property Investments we specialise in sourcing brand new and off the plan properties for buyers. If you’d like to learn more about purchasing property, please feel free to look us up on our website. You can also contact us directly at your convenience.
Our YouTube channel and Market Insights also provide a wealth of information to assist you with many areas relating to property.
While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you want to learn more, please contact us. We welcome the opportunity to assist you.
August 2024
