Australian homebuyers may benefit from higher interest rates: Reserve Bank of Australia

Australian homebuyers may benefit from higher interest rates: Reserve Bank of Australia

SYDNEY (Reuters) – Australians looking to buy a new home may actually benefit from higher interest rates because they lower the home price enough to end up with lower mortgage payments than they face, a senior Australian central bank official said on Monday.

Speaking at the housing conference, RBA Assistant Governor Jonathan Kearns said the 225 basis point interest rate hike already delivered could cut rates by at least 15 percent over a two-year period, while lowering the maximum loan size. for borrowers. About 20 percent.

“It is estimated that the net effect is that mortgage payments to new buyers will be higher for about two years as a result of higher interest rates,” Kearns said.

“But then, the decline in housing prices and the volume of mortgages started to dominate,” he added. “It suggests that because higher interest rates reduce home prices and therefore mortgage volumes, mortgage payments to new borrowers could ultimately be lower than if interest rates had not gone up.”

The central bank has faced much criticism for raising interest rates for five consecutive months to 2.35%, after predicting last year that rates are unlikely to rise until 2024.

As a result, the housing market saw a rapid response, with data from real estate consultancy CoreLogic showing prices nationwide fell 1.6% in July from June.

It was the largest monthly drop since 1983 and brought the annual rate of price growth down to 4.7%, compared to a peak of more than 21% late last year.

Kearns also noted that about 35 percent of housing credit is fixed rate debt, and these borrowers will not experience an increase in their interest expense and loan payments until that fixed rate expires, likely from next year onwards.

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Kearns emphasized that there were many factors other than interest rates that affected home prices, including income growth, immigration and construction costs.

β€œOverall, we know that higher interest rates will drive down residential and commercial property prices, but there is a significant amount of uncertainty about the scale and even the timing,” Kearns said.

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