The Reserve Bank of Australia (RBA) recently raised the cash rate for the third time this year, to 1.35%.
What’s important to remember is that interest rate rises (or falls) are in response to what is happening in the economy. The RBA’s current goal of cash rate rises is to cool inflation, which is currently at 5.1%, and curb household spending.
Generally speaking, interest rate rises signify that the economy is in a good position to deal with higher interest rates. Currently, the labor market is close to full employment, with the unemployment rate at 4% and a record high participation rate.
What does that mean for investors?
For those already in the market, raising interest rates is an opportunity to increase rent. Many property investors are taking advantage of increasing yields, strong rental demand, and supply shortages in the market.
For new investors, the ability to service a loan (to make repayments) may tighten due to rising interest rates. However, there is still opportunity to enter the market. It’s important that you speak with a mortgage broker to understand your borrowing capacity and what you are able to afford with buffers to cope with increasing rates in place.
Finally, investing in property is a long-term game. It’s key to focus on the fundamentals, and hold your investment long into the future.
While occasional shifts in variables, such as interest rates and inflation, may have an impact in the short term, it’s not the great effect that the media claims.
Smart investors know which type of properties to select that will withstand property market cycles.
If you want to cut through the noise, and understand what opportunities are available to you in the market, chat with us.