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While increases to mortgages can be seen as an obvious challenge for homeowners, it’s important to understand what they mean for property investors.
The recent uplift in interest rates by the RBA has deliberately had an impact to curb rising inflation. And with nearly 880,000 Australians' due to come off a fixed rate mortgage in 2023, there is little doubt these increases will influence spending, day-to-day living and investing for many people.
What is important to understand is that this is nothing new. Interest rates fluctuate, they always have. We’ve experienced economic conditions before (remember the GFC?) and it's predicted we'll see interest rates stabilise and reduce in the future.
But, for property investors, it’s not all doom and gloom. Rises in interest rates create opportunity and have several advantages.
As interest rates rise, some potential home buyers may be discouraged from entering the housing market, leading to increased demand for rental properties. This higher demand can result in higher rental income for property investors, potentially improving their cash flow and overall returns.
Great news if you are looking to get into the property market. With less people in market to purchase property, investors have more choice and better value for their purchase. This reduced competition for properties might give investors an advantage in negotiations and potentially lead to more favourable purchase prices. It’s simple supply and demand.
In a low-interest rate environment, the property market can experience rapid price growth, which may lead to a housing bubble. Rising interest rates can help stabilise the market and prevent excessive property price inflation. This can create a more sustainable investment environment for property investors.
"Be fearful when others are greedy. Be greedy when others are fearful."
- Warren Buffet
Property investors have the advantage of claiming valuable tax deductions, including on the interest they pay. A higher interest rate simply means you can increase your tax offset opportunity.
During our more than 25 years of helping Australians build wealth through property, at DPN, we have seen the property cycle move through all its stages. We know that each stage offers advantages and challenges. Our approach is to help our clients get a solid strategy and identify the investment opportunities for now and tomorrow.
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