Interest rates have gone up nine times in a row now since early last year. The important news is though, while you may be paying a higher rate, the way the market is currently, you most likely will be paying a lower price. So the issue really becomes, is it the right time for you to enter the market?

Serviceability is a challenge for most people, regularly reviewing your borrowing capacity and deposit requirements is important in this market.
People’s borrowing capacity has dropped significantly with each rate rise. To put it into perspective, each 0.5% rate rise equates to about a 5% drop in borrowing capacity. Repeat that nine times over, and where you enter the market (and how you feel about it) is going to change. 

Because the impact of the shift has been so great, people are kind of waiting on the sidelines this year thinking, will property prices drop even further?… Do they wait a bit more?… Do they wait until interest rates drop?… The reality though, is no one has a crystal ball. So all this becomes overthinking. Rather than thinking rationally about it all.

There is a transfer of wealth through each property cycle – there’s no shame for selling if you need to. For those who can afford to buy, now is an opportunistic time.
What we’re experiencing is a transfer of wealth. Savvy investors know people who can’t afford to hold onto their properties will unfortunately have to sell. People will often put a lot of pressure on themselves, but the reality is the property cycle will come around. And, perhaps re-entering at a time when better suits might be more realistic for some. 

Do you have the deposit and serviceability to buy now?
Because entering the market now, means you’ll be doing so at a lower market price, comparatively. The reality is, if you’re ready, it’s a fantastic time to buy! So the questions become very simple: do you have the borrowing capacity? And, do you have the deposit or the equity to dive in? 

If you’ve answered yes to each of those, or you think you’re close, but might benefit from some ideas of how best to approach the market strategically with what you’ve got – do it sooner than later, I’d say! And if helpful, soundboard your best approach with a market expert.

At present, there’s basically two scenarios. It really comes down to affordability and borrowing capacity. 

What happens if interest rates go up?
If interest rates continue to go up, your borrowing capacity is going to drop, regardless. So if you’re able to secure a loan today, that same loan may not be able to be serviced for you for the same amount in perhaps a couple month’s time. Given you'll always be approved with a 3% buffer on top of what is the final rate, getting in now as long as it’s not going to financially distress you, could be the right path. If a potential further shift in your borrowing capacity might cut you off from entering the property market within the near future, not hesitating and getting into the market sooner, may actually see you better off.

What happens if interest rates go down?
The other scenario is if you wait and the interest rates go down, the cost of borrowing starts to decrease and it becomes a bit easier to borrow money. And, people feel a bit more confident. There’s more demand in the market because houses for sale are able to sell at a higher price. That would see more people selling their properties, and with that confidence more buyers. But what’s good for the seller, as savvy investors know, will not typically be good for the buyer. If waiting for this state of the market might force you to require more of a deposit, but you haven’t saved enough for an increase in bandwidth, lack of breadth in your planning means you’ll have missed out again. 

We need to look more than two feet in front of us. Without hypothesising too far into scenarios not yet in reach. 

If you have both affordability and borrowing capacity sorted, within a 3% increase, there’s no reason why you shouldn’t buy now, thinking rationally. The demand going up later on, only means you’ll be competing with more people, naturally.

We do expect interest rates might go up another one or two times in the near future. Being the 10th or 11th consecutive interest rate rise, the later rises will of course on household budgets have a greater impact. Seeing potentially more houses for sale, that will be otherwise welcome relief of a typically buoyant market, means Scenario B only becomes more and more clear. Either way, as it boils down to affordability and borrowing capacity, if you have each of these, you’re all clear. 

As savvy investors know, it’s all about your personal finances. And, how you can play them to your advantage, in the long term. Not groupthink.

If you are starting to feel tight on your finances, you can join most people in pulling back. Put the focus on generating income and controlling your household budget, rather than purchasing. And, staying home a little more, for a bit. If you haven’t already, consider investing interstate, where the level of debt and therefore ‘pinch’ at these times is not felt quite so high, as it is in cities like Sydney and Melbourne. 

The reminder across the board, regardless of circumstance is to rise to the challenge, and think generally, how can I diversify?

If you do have your affordability and borrowing capacity in check though, I’d say… go for it! Now is a fantastic time for budding and savvy investors to buy!