‘Just trying to plan ahead’: How the 10th interest rate rise is impacting Canberra home owners

Alarm bells have started ringing that much louder for a lot of Canberra home owners after the RBA raised interest rates for the 10th consecutive month. 

Domain’s The Influence of Mortgage Rates on Property Prices report, released on Thursday, revealed the numerous ways higher interest rates have affected buyers’ ability to meet their mortgage repayments. 

This comes after the RBA lifted the cash rate on Tuesday by 25 basis points to 3.6 per cent.

According to Domain Home Loans data, payments on a $500,000 mortgage will have increased by $78 a month, by $116 for a $700,000 mortgage, and $156 on a loan of $1 million.

Domain chief of research and economics Dr Nicola Powell said Canberra, as a city with higher house prices, is being impacted heavily by interest rate hikes. 

“Lower income households are more impacted by changes in inflation and mortgage rates, and because we have a higher wage in Canberra, this means there is a higher level of disposable income as well,” she said.

“That income is key to meet the obligations of higher mortgage rates, coming off the back of these record interest rate heights.”

According to Powell, in addition to lower income households, people who bought homes at the price peak of the pandemic are also being impacted most by increasing interest rates.

“Those people had locked in the value that they bought their home at, and that is what they are locked into in terms of their mortgage,” she said. 

“Those who are at risk are the ones who extended themselves, who have a large loan with a slim deposit as well … they are the ones that may not be able to financially meet those mortgage repayments.”

The other portion of people who are being forced to face the brunt of the rises are those who are approaching the end of fixed-rate loans taken out during the same period of time, but that is not the majority of mortgage holders, she added. 

“The RBA has indicated that 35 per cent of mortgages are on fixed rates, so that means 65 per cent of mortgage holders are on variable rates,” Powell said. 

“That statistic tells us that the data to date suggests mortgage holders have adjusted well to interest rates, and they have been facing higher inter rates ongoing since May last year.”

Lily Wilson and her partner Locki Rogers considered their capacity to pay off their variable home loan when they bought their first home at the start of this year.

With the goal of buying an older home that could be renovated, the process to find their home took over a year as prices continued to rise and competition meant they hit constant roadblocks. 

However, by identifying their “ceiling” when it came to affordability, things were easier when they purchased their dream house in Gowrie. 

“The interest rates were definitely something we considered and discussed with our broker, but fortunately they didn’t hold us back in finding the right house,” Wilson said. 

“We worked through a lot of worst case scenarios and how we would be able to deal with them, and based our budget for house-hunting around that.

“A lot of people told us we should wait to buy until the rates go down a bit, but we figured it wasn’t worth letting the perfect home pass by, so we went for it.” 

The couple were both able to save while they were hunting, which also put them in a good position to be able to afford any rate rises that came their way, including Tuesday’s increase.

Mortgage broker Mark Edlund  of Clarity Home Loans said there has been a noticeable increase in the amount of home owners looking to refinance, which has come after every rate hike so far. 

However, he said it is largely to do with buyers forward-planning like Wilson, rather than people who are in dire need of help. 

“We compared the last quarter of 2022 to 2021 and we were doing about 24 per cent of our monthly volumes as refinancing, and now we are up closer to 36 per cent,” he said. 

“There is a much greater appetite from borrowers, which shows a sensitivity to rate rises that wasn’t there in the last four years.

“Having 10 consecutive rate rises has really focused people’s attention on the lender and the product, and whether they are getting the best deal … they are just trying to plan ahead.”