Borrowing costs

Rate hike in 2022: buyers warn to prepare for rising borrowing costs

With house prices soaring over the past year, banks raising interest rates will create a dilemma for anyone trying to enter the market this year.

Homebuyers could face a double-edged sword in 2022 as price growth continues to slow as interest rates rise.

Market watchers said they expected price appreciation in much of the country to continue to moderate after a year of more than 22% growth in domestic prices.

And while first-time homebuyers will certainly appreciate a reprieve from the surge in prices, they will also be affected by higher loan repayments, as banks continue to raise fixed interest rates in anticipation of a collapse. Reserve Bank rate hike.

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Mortgage Choice CEO Susan Mitchell said she believes fixed rates will continue to rise this year.

A potential increase in cash rates would be built into fixed rates and the “rates that banks offer will be proportionately higher,” Ms. Mitchell said.’s executive director of economic research, Cameron Kusher, said market conditions have already led to an independent slowdown in rate movements and any increase in interest rates will dampen buyer activity. .

“Prices continue to rise but the rate of growth has slowed and our forecast is that even without an interest rate hike, we will continue to see price growth slow down in 2022,” Kusher said.

While he doesn’t expect the RBA to raise the cash rate in 2022, he said the fixed and variable interest rates offered by lenders are subject to change.

“When interest rates rise, it will contribute to a slowdown in the rate of price growth in the Sydney and domestic real estate market,” he said.

Beginning in October of last year, all of the major banks as well as many of the second tier raised fixed rates, with some increasing as much as four times in the space of two months.

At the same time, lenders have started to lower variable rates on homeowner and investor mortgage loans.

Ms. Mitchell said Mortgage Choice has seen an increase in the number of customers choosing variable rate mortgages as a result.

“We probably have about two-thirds of the variable catches and about a third of the fixed catches,” she said. “It’s still high but it’s much lower than six months ago.”

Mr Kusher said that by raising fixed rates while lowering variable rates, banks were responding to the end of the Reserve Bank’s yield curve control in November as well as increased competition for shares of the Bank. mortgage market.

While it is possible for banks to cut variable rates even lower this year, he said that a slower real estate market and less competition for mortgages could be “an indicator that we may start to see variable rate increases, “as did better wage growth and inflation sustained at 2.5 percent.

“If some of the competition starts to relax a bit, we might start to see some of the lenders raising their variable rates, but I think that’s a very late proposal in 2022,” he said.

Lendi CEO David Hyman said homebuyers shouldn’t be complacent about interest rates.

“The RBA has said it will not make any changes until 2024, but economists say if inflation were to exceed the target range of 2-3% for an extended period, it could happen sooner,” said Mr. Hyman.

While a hike in cash rates is unlikely in 2022, lenders could act independently of the Reserve Bank to raise interest rates, he said.

“Lenders looking to improve their margins can increase their rates at any time, and as we know, once one of the majors starts changing their rates, the others will follow suit,” he said. “Higher interest rates affect how much debt people can comfortably repay and without the certainty of very low fixed rates, buyers might be a little more conservative this year.”

He said this was just one factor that could impact the property market, with supply being another big driver of price growth.

“The real estate market has so far defied expectations during the pandemic and 2022 will undoubtedly be another interesting year,” he said.

Ms Mitchell agreed that “old-fashioned supply and demand” would be more likely to affect the market. “Rates are still at historically low levels so I’m not sure how much that alone will affect the price of housing,” she said.

Originally published as Rate hike in 2022: buyers warn to prepare for rising borrowing costs