'Optimistic' first-home buyers seek respite from the RBA's interest rate hike
Sonia Taylor, 03 May 2022
Today's decision on interest rates from the Reserve Bank of Australia holds more weight than usual for indebted homeowners and first home buyers, thanks to Australia's record-high inflation.
Interest rates have remained historically low while Australia's property market experienced its biggest 12-month price jump ever recorded.
More recently, however, the market has shown signs it's starting to cool, while inflation has soared to a 21-year high, with the CPI rising 5.1 per cent over the past 12 months to the end of 2022's March quarter.
As a result, interest rates have today risen 25 basis points to 0.35 per cent for the first time in 11 years as a mitigation tactic.
Is what could have been a moment of respite for first home buyers set to become yet another financial hurdle to owning property?
We spoke with three 30-something Sydney property hopefuls to garner how they feel about today's historic rate hike.
Many buyers have had to turn to apartments in recent years due to lack of housing affordability. (Domain / Vaida Savickaite)
"Since I've started looking, I've been stunned at how little protection buyers have," explains Katie Cunningham. "When I buy a pair of shoes online I have more consumer rights than I do buying a property that I'm going to spend the next 30 years paying off".
Off the back of a "highly stressful" and record-breaking housing market, Cunningham believes she doesn't have the luxury of allowing potential interest rate hikes to impact her decision-making around buying an apartment.
"Overall, I am a debt-averse person; I don't really want to saddle myself with a crippling loan repayment or anything," she explains.
"But while potential hikes may be encouragement to try and buy on the lower end of my budget range, it feels like such an incredible hurdle to even get the deposit together to be in the game in the first place, that I almost can't think too much about interest rates affecting my decision of what to buy – I just need to get on this freaking ladder, whatever it takes."
Lifestyle buyers looking to remain in sought-after Sydney pockets welcome interest rate hikes as a way to correct borrowing power and help the market cool. (Domain / Steven Woodburn)
The RBA hike of 0.25 percentage points means that someone with a $500,000 mortgage will see their repayments rise by $65 next month.
But those rate changes are being seen in a positive light despite causing buyers to pause and rethink elements of their strategy.
Elise Cochrane and Christina Cox, also attempting to buy their first homes in Sydney, have kept a keen eye on the RBA cash rate in recent months.
"I've been waiting for this moment, I knew it was coming," laughs Cox, who says discussions with family about higher rates "helping to adjust craziness in house prices" has also eased her anxiety about market volatility.
Meanwhile, Cochrane has been factoring in multiple rate hike scenarios for a while.
"I am quite a risk-averse person, so I have actually been looking at the rates and then adding an extra buffer to mortgage repayment calculations," says Cochrane. "I want to see if I could afford repayments if rates go quite high."
But ultimately, interest rates are not going to directly affect the location of where Cox and Cochrane want to live.
"I'm looking for something that I love and want to stay in for 10 years and it won't matter what the market does because I'm happy where I am," says Cox.
"I'm a lifestyle buyer," adds Cochrane. "I'm looking in an area that will maintain my lifestyle, so I'm a little different to a buyer who just wants to get into the market.
"I have a lot of friends who've just had to buy wherever they could afford and 'suck it up'. Whereas I am quite desperate to stay by the beach and figure out how to do that, even if I can only afford a postage stamp."
"I definitely feel more optimistic about the market now than I did even say a month ago".
On the other hand, Cunningham finds asking whether or not interest rates have affected her search radius or property choices an almost redundant question – Sydney's difficult market dictated that long ago.
"When I started my search [in the inner west], I had a specific idea of where I wanted to live that was quite narrow. After three months of looking, the market generally being tough and this being an expensive city, I have already had to widen my search radius and consider other suburbs," she says.
While media reporting can often highlight doom and gloom around rate increases, this doesn't reflect the sentiment among these Aussie first home buyers.
Both Cunningham and Cox believe the interest rate increase will be positive for first home buyers.
Some buyers have already had to extend their radius and 'don't have the luxury' of allowing interest rate hikes to further impact their property search. (Domain)
"I definitely feel more optimistic about the market now than I did, even say, a month ago," says Cunningham.
"While at the moment it feels like people are holding off listing because of the election, because of the interest rate hikes – they're waiting to see what happens – the RBA decision may give me more properties to choose from because people unable to afford repayments will be forced to sell.
"As a buyer, I'm in a relatively good position compared to what Sydney has been like the last couple years. I'm glad I'm buying now and not six months ago," she adds.
Cox returned from the USA during the pandemic. While she owned property in California, this is her first foray into the Sydney market. Her experience thus far has her hoping the RBA's increase is the first step towards course-correcting the bubble.
"Rates rising is a good thing, because people's borrowing power has been insane the past two years," she says. "The huge amounts people have been able to borrow has driven up property prices."
"I'm now thinking twice about how leveraged I want to be".
Cox has found herself shocked at how her relatively 'normal' list of desires is almost impossible to find in a unit within five kilometres of a beach at a sub-$1.5 million price point.
"Even two bedrooms and a car spot, with light so it isn't a dark, dank hole in a rundown '60s building, seems like I'm getting too greedy. It's interesting how quickly you start thinking differently, but it isn't luxury to want a second bedroom, right?" Cox asks.
While the interest rate increase hasn't caused Cox to widen her search radius – it's a non-negotiable to be near family after living internationally – it has caused the Sydneysider to take pause and re-think her buying strategy.
"What I was willing to spend four months ago, I'm rethinking if it's a good decision to spend that amount now," Cox says.
"I'm thinking twice about how leveraged I want to be; how much I want to have to borrow in order to get an apartment. And the uncertainty around rate hikes is making me take my foot off the pedal so I can see how it plays out.
"But everything is a gamble, isn't it? Waiting is a gamble, buying right now is a gamble. You just hope you can buy a place that you can sustain through the ups and downs and somewhere you enjoy living."
The current state of Australia's property market has left Cox feeling "deflated". But she notes that interest rates can't be the only factor we rely on to help support those wanting to own a home to call their own.
"I'm hoping the interest rate hikes will mellow things out a bit. But that being said, people need to earn more money in line with inflation. It can't just be interest rate hikes calling the market, people need to earn more to be able to afford everything."