Rate rise could help buyers and renters

Samantha Donovan: After the Reserve Bank raised interest rates yesterday for the first time in two years, many Australians paying off a mortgage will be under more financial pressure. But economists are predicting the increase in the cash rate could actually be good news for people trying to buy their first home as well as renters. Kathleen O’Connor explains.

Kathleen O’Connor: The RBA’s decision to increase interest rates reverberated in Parliament today. Shadow Treasurer Ted O’Brien firing questions at Federal Treasurer Jim Chalmers.

Ted O’Brien: Shane Oliver, AMP chief economist said and I quote, the best thing that Australian governments can do to help bring down inflation would be to cut government spending. When will the Treasurer finally admit he must control his spending to prevent the 14th interest rate rise under Labor?

Jim Chalmers: That is a view that is not unanimously shared amongst economists. The highest spending government was Scott Morrison’s government. The highest taxing government was John Howard’s government.

Kathleen O’Connor: While the nation’s leaders were arguing, many are wondering what the impact on the property market will be, particularly for Australians aiming to buy. Dr Nalini Prasad is an economist at the University of New South Wales and previously worked at the Reserve Bank of Australia.

Dr Nalini Prasad: So when interest rates rise, essentially potential homeowners qualify for smaller loans. So this reduces the amount that people can essentially borrow to pay for a house. These people have less money to pay for a house but expect this to have downward pressure on house prices. Should expect to see in the longer term a fall in house prices.

Kathleen O’Connor: In its first meeting of the year yesterday, the Reserve Bank lifted interest rates to 3.85 per cent, up a quarter of a per cent. It means Australians wanting to buy a house will now have less money to spend. But Dr Nalini Prasad says it could be good news for first home buyers.

Dr Nalini Prasad: If there is downward pressure in house prices in the longer term, it essentially should mean that first home owners find it easier to enter the market.

Kathleen O’Connor: Eliza Owen is an independent housing market analyst. She agrees the decision to raise interest rates will bring down house prices.

Eliza Owen: For some markets like Sydney and Melbourne, that probably means a slight decline in housing values because they’ve been pretty flat anyway. And for really strong markets like Perth, Brisbane and Darwin that have been rising really strongly, we’re likely to see a slowdown in the pace of growth in the short term.

Kathleen O’Connor: For people who rent, Ms Owen says there shouldn’t be any significant price hikes from landlords.

Eliza Owen: The RBA did some research on this in 2024 and 2025. They found that there isn’t a big direct impact from rising interest costs of mortgage holders to renters. They found that at most a $1 increase in mortgage interest costs would only push up rents by three cents. Why would there be any reason for them to increase rents other than the fact they’re in a hot market?

Kathleen O’Connor: Nerida Conirsbee is Chief Economist at Ray White Real Estate. She’s confident one interest rate hike won’t significantly change house prices, but she expects rental prices will go up.

Nerida Conisbee: When we have a look back to May 2022 when rates started rising post pandemic, we did see an almost immediate drop off in the level of investor activity. So the number of investment properties being purchased dropped by close to 30%. So that obviously has an impact on the number of rental properties.

Kathleen O’Connor: Ms Conisbee says the recent rate rise won’t have a big effect, but if there are more coming, we could see a situation similar to 2022.

Nerida Conisbee: There’s no doubt that fewer investment properties does increase rents and this rate rise, you know, if we only have one, probably won’t have a major impact. We saw a very high levels of investor activity last year, but if we do see several coming through, it will have a substantial impact.

Samantha Donovan: Nerida Conisbee is the Chief Economist at Ray White Real Estate. Kathleen O’Connor reporting.