According to a top central bank official on Monday, Australians wishing to purchase a new home may actually profit from higher interest rates as they drive down housing costs to the point where mortgage payments will be cheaper than they otherwise would be.
Jonathan Kearns, assistant governor of the Reserve Bank of Australia (RBA), claimed during a housing conference that the 225 basis point rate increases already implemented might reduce prices by at least 15% over the course of two years while simultaneously reducing borrowers’ maximum loan amount by about 20%.
“Estimates estimate that the net effect of higher interest rates would be that mortgage payments for new buyers would be higher for around two years,” said Kearns.
The decreases in property prices and the magnitude of mortgages take over after that, he continued. “It suggests that mortgage payments for new borrowers may ultimately be lower than if interest rates had not increased because higher interest rates reduce house prices and, consequently, mortgage amounts.”
Given that it had previously predicted that rates wouldn’t likely rise until 2024, the central bank has come under fire for raising rates for five consecutive months, reaching 2.35%.
As a result, the housing market has significantly decreased. According to statistics from real estate consultant CoreLogic, prices nationwide fell 1.6% from June to July.
This was the biggest monthly decline since 1983, which caused annual price rise to slow to 4.7% from a peak above 21% late in the previous year.
Around 35 percent of housing loans, according to Kearns, has fixed interest rates. As a result, these borrowers won’t see a hike in their interest costs or loan payments until the fixed rate expires, which is probably starting next year.
Overall, increased interest rates will likely lead to a decline in residential and commercial property prices, although the exact amount and timing of this decline are highly unknown, according to Kearns.
