The finance landscape changed in May when the Reserve Bank of Australia lifted the official cash rate from its historical low of 0.10% to combat inflation.
By October, just six months later, the cash rate had increased by 2.50 percentage points – the fastest pace since 1994.
As many lenders have passed on these increased borrowing costs to their variable-rate customers, rising interest rates are making life harder for many property investors.
Fortunately, there are things you can do to cushion the blow. Chief among them is to work with an investment-savvy mortgage broker to make sure you’re on the best deal possible for your circumstances. If you’re not, there’s a good chance a broker could help you refinance to another lender with a more competitive rate, saving you a significant sum of money.
Unsurprisingly, lots of investors are doing just that right now, with refinancing activity at record levels, according to the Australian Bureau of Statistics.
Higher interest rates and borrowing power
Increased borrowing costs aren’t the only impact of rising rates, either – with every 0.50 percentage-point increase in the cash rate reducing your borrowing capacity by around 5%, according to the Reserve Bank of Australia.
This can make qualifying for finance that much trickier – not great news if you’re looking to expand your portfolio. Once again, a good broker is your best friend here as they can give you the best chance of getting finance.
Review your rental prices
Property rents have soared to new highs in many parts of Australia, with the latest Domain rental report finding
- Combined capital city house rents grew by 1.9% over the September quarter, to be up 12.8% year-on-year
- Unit rents rose 6.5% over the quarter and 16.7% annually
So you should also speak to your property manager to make sure your rents are keeping pace with the market.
A rental increase can help with the impact of higher loan repayments, as well as increase your borrowing capacity.
Your mindset matters
Finally, don’t forget the importance of having the right mindset. That means:
- Remembering that property investing is a long-term game with many highs and lows along the way
- Blocking out the short-term news cycle to focus on the big picture of building life-changing wealth
- Revisiting your property goals to focus on solutions, not problems, in the current landscape