Australia just experienced its first interest rate rise in over a decade. While mortgage holders weigh up their next steps, could it be time for renters to breathe a sigh of relief?
Been following the small part of the news that’s not Johnny Depp’s trial by TikTok? You might have seen the RBA hiked the official cash rate by 0.25 percentage points to 0.35%.
Here’s the thing. This figure hasn’t budged in some time, and the resulting media panic has zoned in on the likely outcome for things like variable home loans and property prices – especially in the lead up to the ever-looming election.
For renters, the go-to line has revolved around rent increases to cover rising costs, and while it might be a worthy concern, is it all bad news? Maybe not.
1 – Cash rate increases can help to cool price pressures.
Let’s do a quick refresher. The rough third of Australian households with mortgages are going to be up against higher costs, which will hurt their back pockets. Some might choose to cut back on purchases and reduce their spending, taking a little pressure off prices.
Now, the first response for some landlords might be to raise the rent. But it’s not a given, nor a reason for panic. Interest rates jumping up don’t automatically mean the rental market is going to increase by the same amount.
In fact, there are several factors at play here, such as the local economy, the type of properties available, employment, wage growth and more. Landlords want to keep reliable, happy tenants on board and know that raising the rent too much risks a vacate deal down the track.
Landlords can also offset higher interest costs by reducing their outgoings – they have options to refinance to claim extra deductions too.
2 – You might see a decent boost to your savings goal
Sitting pretty on a little savings nest egg? You’re in luck. Higher interest rates can actually support renters with cash savings, such as in term deposits. If you’re renting and busy saving up for a deposit, this will include you.
In most cases, your bank should pass this interest rate rise onto your account because their interest rates are tied to the cash rate.
So while a rise might make finances a little tricky for anyone already on the property ladder, it can work in your best interest if you’re already in the process of saving up for a deposit. Score!
3 – Now’s a great time to reassess your budget and financial strategy.
If you’re keen to cut future home loan costs in the long run, managing a slicker budget and cutting back on living costs could put you in a better position to make repayments. A little focus and a solid financial plan go a long way.
4 – The rate rise could trigger a fall in house prices.
Let’s face it, that rate rise was sharper than expected. So the initial shock of the first interest rise in like, forever, has strong potential to slow the housing market in a couple of ways. It’ll likely squeeze recent homeowners, spook new buyers and – potentially – trigger a fall in house prices.
So while this initial rate rise was still ‘relatively’ small, it may also signal the start of a series of rate rises before the end of 2022. This sort of activity may put even more downward pressure on house prices, affect levels of buyer enquiry – and even reduce buyer competition.
See, it’s not always so bad being a renter.
Rent.com.au is Australia's largest company dedicated to renters and is owned and operated by ASX-listed Rent.com.au Limited (RNT:ASX). For over 15 years, Rent.com.au has exclusively focused on making renters' lives easier by making it easier to find a property, secure it, move in and pay rent.