Refinancing and Research are Key for Property Investors as Interest Rates Rise

Over the past ten years, before interest rates started rising, property investors and homeowners enjoyed historically low interest rates. Not only did low rates make it easier, in some cases, to borrow, but it also meant some people could borrow more if they could afford it. But now, the market is shifting. After a short break, the Reserve Bank of Australia (RBA) raised rates again at their November meeting. At the time of writing, Australia’s cash rate is 4.35 per cent. There are multiple flow-on effects from rising interest rates, and property investors should be aware of key things to consider throughout this time. This article outlines what property investors should look out for in an inflationary environment where interest rates are rising.

Consider refinancing your home loan

As interest rates rise, you have more outflows with your investment property due to the increasing repayments on your investment loan. If you’ve been on a fixed-rate loan for some time, you probably enjoyed lower repayments as rates rose. However, if your fixed period has ended or is close to ending, it may be time to consider refinancing. With refinancing, you can do a range of things, from extending your loan over a longer period to moving to a bank that offers lower interest rates and better loan features. If you’re thinking of refinancing, make sure you speak to a trusted advisor or mortgage broker so you can find the right loan product for you.

Stay current with the rental market

Monetary policy, such as interest rate rises, is designed to slow inflation and bring the annual consumer price index (CPI) back to the RBA’s target range of 2 to 3 per cent. As many property investors would have noticed, inflation and tight supply have caused sharp rises in rental property prices. Throughout this time, it’s wise to monitor rental prices in your market to ensure the rent you’re charging is fair. And when it comes to raising your rental price, this should be done in accordance with the residential tenancy laws in your jurisdiction.

Monitor sales prices

Similarly, property sale prices are impacted by rising interest rates. At the time of writing, property prices around Australia have remained relatively strong. This may change if more people facing the “mortgage cliff” (coming off low fixed rates onto higher variable rates) are unable to afford the higher repayments. If you are considering selling any of your investment properties, monitor the market to try and sell at an advantageous time. Similarly, if you have a large amount of equity built up in a property and want to use it to buy another investment property, then waiting for a slight downturn in prices may be wise.

While no one can predict how the property market will respond to rising interest rates, you can stay aware and proactively protect your wealth by ensuring you can afford increased repayments and adjust your rental prices accordingly. As always, it’s essential to do your own research and, for the most part, take a long-term perspective by investing in blue-chip properties in well-connected areas.

 

Remember, this article is general in nature and is not financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.