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First home buyers could be big winners from rate rises

Potential home buyers inspect a property that is open for inspection in Bondi, Australia. A sold sign out the front of a property.
First home buyers could soon find it easier to crack the market after the RBA lifted interest rates. (Source: Getty)

After the Reserve Bank of Australia (RBA) hiked rates earlier this week, potential first home buyers could see more options, with expectations property prices could fall.

A higher cash rate will mean higher variable mortgage rates for homeowners, which could lead to a reduction in borrowing power, according to Corelogic.

“As the cash rate normalises, we can expect housing markets to lose further momentum,” Corelogic research director Tim Lawless said.

Lawless said past research from the RBA had shown higher-end housing markets, with a larger amount of investor-owned properties, were more sensitive to interest rate changes in the short term.

“This may be why Sydney and Melbourne markets are already seeing price declines, with more affordable housing markets expected to eventually follow the downward trend,” Lawless said.

“The extent of any housing market downturn depends on how high and how fast interest rates rise, but also a variety of other factors.”

Factors that could stop a slowdown in property prices

Lawless said that despite rate hikes, Australia’s low unemployment rate may counteract any price slowdown in the property market.

“Such a low unemployment rate, along with an expectation for higher income growth, should keep mortgage distress and forced sales at relatively low levels,” he said.

“Additionally, as we enter a period of higher interest rates, borrowers are generally well ahead of their mortgage repayments.”

The RBA noted in its latest financial stability review that the median repayment buffer for owner occupiers with a variable mortgage rate had grown to 21 months of scheduled repayments in February 2022, up from 10 months at the start of the pandemic.

“Even with a two-percentage-point rise in mortgage rates, the median repayment buffer would reduce back to 19 months, which is still substantial,” Lawless said.

“With the median household well ahead of their mortgage-repayment schedule, the risk of households falling behind on their mortgage is reduced.”

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