Renovating in a world of constant interest rate increases in Australia

In my work it’s interesting to both observe and experience various market driven factors. Such as the how the pandemic has affected the hospitality interior design space. Now there’s a lot of talk about interest rate increases and how that’s affecting the market. Including whether renovating with interest rate increases is viable.

For residential interior design I have found that the interest rates increases have meant that people who can afford to are renovating their homes rather than buying new property or spending on other big ticket items such as travel.

The rationale for this is that renovating can improve the value of a home in the long term but in the short term improve client’s enjoyment of their home from a functional and aesthetics perspective.

But I wanted to understand, in real terms, what the interest rate increases mean to an experiened mortgage broker. So I spoke to Anna Nicolazzo from the Liberty Network.

Interest rate increases impact on house prices

GID: Interest rates are a hot topic right now and there is a lot of commentary about house prices falling, is this actually true, what’s your experience of the real estate market at the moment?

ANNA: Following the property boom of 2021, that saw property prices soar across Australia, a market correction was almost inevitable. 

Rising interest rates remain the primary driver of the downturn.  With interest rate rises borrowing power decreases so buyers are approaching the market with a bit more caution.

Which appears to have created more balanced market conditions between buyers & sellers when compared to last year’s boom.

How interest rates affect housing affordability

GID: Housing affordable is another hot topic, what would you say is the number one tip for people wanting to buy a house in the next 12 months?

ANNA: Creating a savings plan & getting your budgeting right in the lead up to purchasing a property will put you on the right track when being considered by a lender. 

Five percent genuine savings need to be evident in your bank account for a minimum of three months (if you do not have the full 20% deposit) to put towards the purchase. 

There are some great government guarantee schemes at the moment which is worth looking into.  For example if you are a First Home Buyer or Single parent you may be able to get into the market with as little as 2% or 5% of the purchase price.

Contact your broker to see if you are eligible for any of these schemes as it may save you thousands of dollars in mortgage insurance and get you into your own home sooner.

Refinancing to tackle rising interest rates

GID: Refinancing seems to be the predominant advice for people wanting to tackle increased interest rates, what’s your advice on refinancing?

ANNA: Reviewing your home loan every 12 – 24 months is extremely important. 

What might have been right for you two years ago may not necessarily be right for you now.  The amount of people coming off fixed rates this year is going to be interesting.

Primarily, as some of these customers locked in their interest rate in the low 2s and will be finding a big jump to their monthly repayments.

So, it’s important for people to speak to their mortgage broker to see if they can re-negotiate their variable rate with your current lender.

Or perhaps refinance to another lender with a better rate and/or product that suit their current requirements.

Response to interest rate hikes by property investors

GID: Investors are also being impacted by the current housing market, what has been the response to increased interest rates by investors?

ANNA: Personally, I have seen a downturn in investor applications in the last six months mainly due to borrowing capacity decreasing with continued rate increases. 

Units and townhouses have been the alternative which are cheaper in price and more accessible to those that have a tight budget due to limited borrowing capacity.

Consumer confidence and interest rate hikes

GID: From your experience how much of the housing market is impacted by low consumer confidence

ANNA: The media play a huge role in driving down consumer confidence because negative headlines tend to sell and when the economy takes a turn for the worse, the papers fixate on doom and gloom predictions about the state of the economy. 

If people are worried about the economy and property prices falling, they can be anxious about taking out a mortgage and delay buying which will impact the housing market.

I enjoyed my chat with Anna. Sometimes we can read a lot of information which can be confusing. But renovating with interest rate increases seems viable for some people in today’s market.