The Reserve Bank of Australia Governor Philip Lowe has advised that interest rates could plausibly rise this year. As it may happen, he has urged new homeowners to prepare for any elevated mortgage repayments rates as the country’s economy slowly recovers from the pandemic.
“The advice that I would give to people is — make sure that you have buffers. Interest rates will go up. And the stronger the economy, the better progress on unemployment, the faster and the sooner the increase in interest rates will be,” he said.
This rise will undoubtedly have the biggest impact on buyers with a small deposit as this will substantially increase the required amount of savings to purchase a new home.
How Can Buying Off The Plan Help?
For low deposit home buyers, buying off the plan is increasingly becoming a more viable option to get into the housing market.
In most off the plan development projects, you are only required to pay a small deposit to secure your property. This allows property buyers more time to accumulate savings and organise their mortgage without compromising on their dream of owning a home.
Comparing it with an established property, buyers cannot secure a new home until the stipulated deposit is paid and your finance approvals are usually subject to this deposit payment – making it a stressful situation, especially with an interest rate increase on the horizon.
In the long run, off the plan properties are also on average more cost effective compared to buying an established property, as there is minimum maintenance required and if any maintenance costs do arise they are usually covered in builder warranties.
With a combined benefit of low deposit, and cost-effective property prices, off the plan properties offer a low entry barrier access into the housing market.
If you have enough savings to put down a lower deposit but are still looking to break into the housing market before the possible interest rate hike, then buying off the plan could be the solution.
Off The Plan Listings
If you are in the market for Off The Planâ properties, jump on to our website – offtheplan.com.au for the hottest new properties listings across Australia. All our property listings provide you easy access to valuable project assets such as floor plans, brochures, contact details and key project dates.
If you need assistance with your mortgage and finances, we also have an array of Home Buyer Resources to help you calculate your borrowing power and loan repayment calculators to give you can get an estimate of your potential to purchase an off the plan property.
Additional Insight on Interest Rates - How Much Higher Will the Interest Rate Go Up?
Former RBA board member John Edwards expects the RBA is likely to raise the cash rate four times this year.
In fact, many economists believe that the unexpected fast economic recovery and the fear of rising inflation could force the reserve bank to increase interest rates more than once. Predicting that the first rise could hit around August or September. While others believe that the ‘patient’ approach of RBA could potentially force borrowers to pay higher mortgage repayments as early as May.
The current official cash rate is just 0.10%. Dr Philip Lowe warns of a cash rate rise of at least 2.5%, or if not a little higher, 3.5% from the record low interest rate of 0.10%.
So how does it affect mortgage rates? An increase to 2.5% would increase the repayments on a $750,000 mortgage, the current average loan for an established house in NSW by $1004 a month or $12,048 a year. At 3.5%, home loan repayments would climb by $1468 a month or $17,616 a year.
Similarly, a 2.5% cash rate would increase repayments by $849 a month or $10,188 a year on the average $634,000 Victorian mortgage. At 3.5%, monthly repayments would be $1241 and $15,000 a year.
