Interest rates have been steadily falling over the past decade, but 2022 might be the year they finally start increasing.
Between November 2010 and November 2020, the cash rate, which is set by the Reserve Bank of Australia, fell from 4.75% to a record-low of 0.10%. As a result, lenders, which often take their cue from the RBA, reduced their investment home loan interest rates to record-low levels.
The RBA has made it clear that the next time it changes the cash rate, it will almost certainly be in an upwards direction.
For most of last year, the RBA said that move was unlikely to happen before 2024. Then, late last year, the RBA said it might occur in 2023. The Commonwealth Bank, though, expects the cash rate to increase in late 2022 (while ANZ, NAB and Westpac have tipped 2023).
Investor rates can change even if the cash rate doesn’t
Even if the Reserve Bank doesn’t change the cash rate in 2022, there’s no reason why lenders won’t change their investment home loan interest rates.
According to the RBA, between November 2020 (when the cash rate last changed) and October 2021 (the most recent month for which there is data), interest rates for investment loans trended down:
In other words, even though the cash rate remained steady, banks reduced their investor loan rates. But the reverse can also apply: banks can raise their investor loan rates even if the Reserve Bank continues to keep the cash rate on hold.
Good investors play the long game
Whatever happens with interest rates in 2022, there are four important things to bear in mind:
- Interest rates are at historically low levels
- Sooner or later, they’ll have to increase
- Property investors should always have buffers in place, to allow for rate rises
- When rates do eventually increase, property investment will remain a profitable exercise if you buy quality properties in quality locations and hold them for the long-term
So investors should focus on the long-term fundamentals, not short-term media chatter about interest rates.