What does the interest rate increase mean for First Home Buyers?

Here's what First Home Buyers can expect from the interest rate increase

9 May 2022 - 5 mins min read
What does this mean for First Home Buyers?

The RBA has increased the cash rate

What does this mean for First Home Buyers?

On Tuesday, May 3, the Reserve Bank of Australia announced that they will increase interest rates to 0.35% for the first time in a decade. Naturally, there appears to be a lot of anxiety around this announcement, particularly for homeowners and first home buyers, but is it really all doom and gloom?

What effect does the interest rate increase have on first home buyers?

The increased interest rate means that any homeowners on a variable rate are likely to experience increases to their mortgage repayments. While it’s an increase, some might not notice too much of a change. To paint a picture of the change, someone with a $500,000 mortgage might have to pay an extra $65 a month. Broken down to weekly repayments, it’s around an extra $16 a week.

For first home buyers, a higher interest rate means that banks will cut down on lending and first home buyers could see a reduction in their borrowing power. This works by lenders assessing whether a borrower can repay loans at seven points higher than the interest rate.

Again, while it means first home buyers can’t borrow as much money as they might’ve liked from the bank, they can feel comforted knowing that their risk of borrowing too much money that could see them enter financial stress later down the line when unexpected things pop up (hello pandemic!) is reduced, and they’ll be more capable to live comfortably and within your means.

What does this mean for first home buyers?

What effect does the interest rate increase have on the market?

While it might seem counterintuitive, the cash rate increase is often reflective of the Reserve Bank’s efforts to slow down the economy at a time when the cost of living is rising. Higher cash rates ultimately mean less money is being passed around. 

This is a great thing for first home buyers. In the years prior where this aspiring segment of the market have had their dreams crushed by sales of record-high property prices, the increase in interest rates are expected to slow this right down.

“We predict property prices will go down 10 to 15 per cent, and [the rate hike] will also mean less competition, drying up of transactions and buyers,” AMP’s chief economist Shane Oliver told news.com.au ahead of the RBA’s meeting scheduled.

Some can see the glass as half empty, with the increased interest rates and tighter lending practices resulting in reduced borrowing power, however there’s definitely reason to see the glass as half full, as first home buyers could be less likely to be priced out of the market. There’s only so much a first home buyer can do with their deposit and loan approval if someone with decades of wealth behind them come in and purchase the property right from under the nose of first home buyers.

In many cases, first home buyers can feel positive about the efforts they’ve put towards their savings, budgets and loan approvals with the hope that they won’t be priced out of the market this time round. With the government incentives still offering great opportunities for first home buyers too, 2022 is looking up.

Find what suits you

Find what suits you

Unsure what your options are? Porter Davis has a range of floorplans to suit everyone. Our first home buyer options range from comfortable and stylish townhomes to sprawling home designs from our Lifestyle range. See below to what suits you.