How the latest interest rate rise affects home owners, and what's next for the property market

You could hear the collective groan and feel the belts tighten around the country when the Reserve Bank of Australia announced mortgage holders will once again face another rate hike in May.

Rapid rises in interest rates over the past year have knocked the stuffing out of many would-be buyers and sellers.

Both groups have been left with a lack of clarity and confidence – denting prices and giving many a harsh reality check.

One of the most challenging aspects for buyers and sellers is the stop-start nature of the rate-rise cycle.

What people really want is certainty over how much they can actually spend if they’re going to transact.

For mortgage holders, the problem at the heart of this is not just how high interest rates go up per se, it’s how long rates will remain at elevated levels.

It’s been a year since rate rises started, and higher repayments are costing a typical home owner thousands more each month.

Borrowers with a $500,000 home loan now pay $1127 more each month than they did before rates started rising.

For home owners with a $1 million mortgage, monthly repayments are now $2251 higher.

Those aren’t tiny amounts and people are really feeling it, especially if they’re buying and selling.

Meanwhile, the problems many first-home buyers are faced with are these:

1. There’s simply not enough supply and choice on the market.

2. Do you buy now or risk your borrowing power being reduced if rates rise again?

3. Do you wait for rates to start declining but risk a rise in house prices? 

What’s next for the property market?

Many say we’re in a buyers’ market but the sands seem to be shifting. The cocktail of low supply, strong demand from migration and the tight rental market is fuelling a faster-than-expected turnaround in the market.

The property market is driven by supply and demand. The currently lean stock levels are helping to drive clearance rates higher and put a floor under prices – confirmed by Domain’s most recent House Price Report.

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With migration set to surge over the next few years, you don’t have to be a rocket scientist to know what that will mean for prices in the years ahead.

Just look in the rear-vision mirror; we’ve been here before.