The Reserve Bank has done it again. Another 0.25% increase, taking the official cash rate to 4.85%, the highest we've seen in 18 years.
For property investors already dealing with higher mortgage repayments, this certainly isn't the news they wanted to hear.
But does another rate increase mean investors should put their plans on hold?
Not necessarily.
I've been investing in property for over 20 years, and one thing I've learnt is that the property market doesn't stop presenting opportunities just because interest rates are high.
What changes is how you need to approach it.
The biggest mistake investors make when rates rise
Whenever interest rates rise, I notice the same reaction. Buyers get nervous, investors start questioning their decisions and many decide to sit on the sidelines until things improve.
I understand why. Nobody wants to take on a mortgage when borrowing costs keep climbing.
See also: Another rate rise may hurt confidence before it hurts property values
But here's what I find interesting.
When the market is booming, buyers are happy to compete against each other, pay above asking price and make decisions driven by fear of missing out.
Yet when conditions become more challenging and there may be greater room to negotiate, many of those same buyers disappear.
I've always found that a little strange.
That doesn't mean everyone should rush out and purchase a property tomorrow. Far from it.
But making investment decisions purely based on what the RBA announces every few weeks isn't much of a strategy either.
What does a 0.25% rate rise actually costs
For an investor with an $800,000 interest-only mortgage, a 0.25 percentage point increase means an additional $2,000 in interest each year, assuming the bank passes on the full increase.
That's approximately $167 a month.
Now, I'm not suggesting $167 is nothing. For some households already stretched financially, every dollar matters.
But when assessing an investment property worth hundreds of thousands of dollars, we should also be looking at the bigger picture.
What's the rental income? How much equity does the investor have? Can they comfortably manage the repayments? What happens if rates increase again?
These are the questions investors should have been asking before purchasing, not just after the RBA raises rates.
Higher interest rates can create opportunities
When borrowing conditions tighten, some buyers lose borrowing capacity, others become hesitant, and a portion leave the market altogether.
Depending on the location and property, this can create opportunities for buyers who have their finances organised and are ready to negotiate.
A property that might have attracted 10 buyers in a stronger market may attract considerably fewer when confidence weakens.
Of course, this isn't happening everywhere. Some markets remain competitive, and quality properties can still attract strong interest.
But the point is that higher rates don't automatically make every property a bad investment.
In some situations, they can actually improve a buyer's negotiating position.
The important thing is understanding the local market and not assuming every seller is desperate simply because interest rates have risen.
Investors need to stop ignoring rental yield
One area I believe investors need to pay far more attention to is rental income.
For years, many Australians have been comfortable purchasing negatively geared properties, hoping capital growth will eventually justify the ongoing holding costs.
That approach can become much harder when interest rates are rising.
Personally, I've always placed considerable importance on cash flow.
See also: Rental yields hit 11-year high as home prices fall
Depending on the property and location, strategies such as dual income homes, granny flats and approved co-living arrangements can potentially generate stronger rental returns than a traditional single tenancy.
However, higher rental income doesn't necessarily mean a better investment. Investors still need to account for vacancy, insurance, maintenance, management fees, approvals and additional operating costs.
A property earning $900 a week in rent may look attractive, but if the purchase price and expenses don't stack up, the headline rental figure means very little.
Investors need to run the full numbers, not just look at the advertised yield.
What about investors who already own property?
If you've owned your investment property for more than 12 months, I'd be reviewing your mortgage before making any major decisions.
Are you still getting a competitive interest rate? Have you asked your lender for a better deal? Could refinancing make sense once fees and other costs are considered?
It's surprising how many property owners continue paying their existing rate without questioning whether something better is available.
Even a 0.20 percentage point reduction on an $800,000 mortgage would save approximately $1,600 a year in interest, assuming the loan balance remains unchanged.
I'd also review rental income against current market conditions.
That doesn't mean automatically increasing the rent. Any adjustment needs to reflect comparable properties, tenancy agreements and the relevant state legislation.
But understanding where your investment sits financially is essential.
Sometimes improving the performance of an existing property is a better move than rushing out to buy another one.
Would I buy property with rates at 4.85%?
Yes, provided the right opportunity came along and the numbers worked.
But I'd be far more selective.
I wouldn't purchase something simply because an agent said prices were about to rise. I wouldn't rely on future rate cuts to make the repayments affordable, and I certainly wouldn't stretch my borrowing capacity to the absolute limit.
I'd be looking at employment, rental demand, infrastructure, population trends and the property's ability to generate income.
I'd also want enough financial breathing room to manage further rate increases or unexpected expenses.
The mistake isn't necessarily buying when interest rates are high. The mistake is buying a property you can only afford if everything goes perfectly.
My advice to investors
Don't let one RBA announcement determine your entire investment strategy.
If you're already struggling with repayments, take the time to review your finances and speak with your lender or mortgage broker.
If you're financially comfortable and considering buying, keep looking at opportunities, but be disciplined about the numbers.
And if you're waiting for interest rates to come down, remember that lower borrowing costs don't automatically guarantee a better buying opportunity. Competition may also increase when conditions improve.
After more than two decades in property, I've learnt that there will always be something worrying investors. Interest rates, inflation, elections, economic uncertainty or property prices.
The investors who tend to navigate these conditions better are those who understand their numbers, manage their risks and think beyond the next six months.
Interest rates might be at an 18-year high, but that doesn't mean every investment opportunity has disappeared.
It simply means investors need to be smarter about what they buy, what they pay and how they finance it.
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