Cashed-up property investors are set to be the biggest winners from what we see to be a procession of hikes in the Reserve Bank of Australia’s official cash rate.
The more experienced investors and more savvy home buyers will welcome less competition in the market. At the same time, they tend to have unrestricted income and cash flows because they’re high-income earners, so they’re the least likely to be affected by these minor increases in the interest rate.
While the RBA tends to cut rates very quickly when the economy slumps, such as after the GFC and during the COVID pandemic, it tends to lift rates extremely slowly.
Australian Bureau of Statistics figures show this recent 0.25 per cent rate rise will increase interest rate charges on an average mortgage of $600,000 by an additional $1500 a year.
Borrowers have enjoyed rate cuts of 1.9 per cent over the last six years, so they shouldn’t be concerned about such a minor lift, particularly as they’ve already been assessed at much higher interest rates.
Prestige property investors are likely to have most of their portfolios in Sydney and Melbourne anyway, so have benefitted from phenomenal levels of capital growth. Most have bought in the cycle and have had a dream run with price growth and rental growth, and they’d typically have a lot of contingencies built in.
They’ll have good incomes and are happy to run negatively geared property and have no problem covering a cash flow shortfall. A 0.25 per cent interest rate rise on a $10 million property will be a significant jump, however the wealthier might have different buffers in place – more cash or more assets they can sell to raise cash – but they’ll feel it just the same.