Australian housing market: How RBA interest rate hikes are hitting first-time home buyers across Australia

Buying a first home is daunting at the best of times.

But the myriad twists and turns in the Australian property market have made navigating the maze of home ownership even more difficult for buyers.

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When the pandemic hit, the cash rate was cut to 0.1% in a bid to give Australians some financial breathing room.

It was announced that the rate would not be increased again until 2024, which meant that many people borrowed in the belief that they could advance in their repayments.

But that all changed this year when, in May, the Reserve Bank’s board voted to raise the rate in the face of rising inflation.

This was followed by three more consecutive hikes, taking the interest rate from 0.1% to 1.85%.

For an Australian with an average home loan, the latest 0.5% increase means an additional $174 for their monthly repayments.

While this may not seem like much on paper, it can be daunting for people navigating their first months of mortgage ownership.

Fear of what might happen

Ferdi Hepworth is one such Australian.

She moved into her Footscray home earlier this year after four long years of waiting, initially redeeming the plan before COVID-related delays.

His move in came shortly after the second of four rate increases.

The single mother and self-confessed ‘nervous Nellie’ told she was bracing for the housing market to crash.

“We were sort of planning but couldn’t implement until we were very close to construction, which I found quite frustrating,” she said.

“That’s how it is, though, and so it was kind of impossible to plan knowing that (the rates) were definitely going to go up.”

Ferdi Hepworth with his daughter Olive in front of the plans for their new home, in which they finally live. Credit: Provided

She said she had managed to lock in the majority of her mortgage, meaning most of the loan is fixed rate while some is at variable rates.

“It was so obvious that it was going to increase – but it became, well, how much is it going to increase?”

To prepare for any increases, the first home buyer budgeted for her “worst case” scenario.

“By the time my rate is set and I know exactly how much I can allocate, because I have a little bit of slack, I just put a little bit more into my mortgage each month,” Hepworth said.

“I have this reinforcement because I can’t stand the idea of ​​staying too close to the line with mortgage payments.

“That really scares me.”

Dramatic changes for buyers

Hepworth and her daughter Olive are now settled in their home. But there are still plenty of Australians browsing the market.

The young couple Massimo di Bennardo, 27, and Stephanie Menotti, 24, are among them.

Massimo di Bennardo and Stephanie Menotti are among thousands of potential first-time home buyers. Credit: Provided

They were in the final stages of buying a house late last year before an 11am call-in caught a siding problem.

If they had put pen to paper, they would have ended up with a bill for $40,000 on top of their moving expenses.

They have since connected with Melbourne-based mortgage broker Andrew Wheatley and say that in the months since, the market has changed dramatically.

“Since then we’ve kind of been back in the market and obviously back then it was a good time for us to buy with such low interest rates,” Menotti said.

“We had, I think, when we made this offer, we had an interest rate with the Bank of Melbourne at around 1.89% for two years.

“And now…being back in the market and watching, the interest rate has obviously gone up.”

Now the couple are looking at an interest rate of around 2.4%, at best.

Di Bennardo says he’s comfortable waiting out the turmoil until rates normalize and house prices stabilize. Menotti is a little more difficult to convince.

Rate hikes pose a delicate balancing act for mortgage holders. Credit: DIEGO FEDELE/AAPIMAGE

But the couple agree they won’t jump into the market without balancing their budget first.

“If we found a gem and if it was within our means and we were comfortable with the payments and all, and we weren’t going to eat tuna and rice every night” they would consider a purchase , said di Bennardo.

“(But) if that means we’re going to have to sacrifice a lot of disposable income, then it’s just not worth it.

“We still want to be able to, you know, go out maybe once a week, twice a week and have your hair done or your nails done normally.”

A difficult balancing act

Rate hikes pose a delicate balancing act for mortgage holders. research director Sally Tindall said the four consecutive increases amounted to around $500 more per month.

She compared it to someone having to buy a new washing machine every month.

“Some borrowers may now be pressing the panic button as rate hikes start to snowball,” she said.

“Finding an extra $500 a month to cover the mortgage will be difficult for many families who are already juggling rising grocery and gas prices.”

In a statement explaining the most recent decision, RBA Governor Philip Lowe cited rising inflation.

“Inflation is expected to peak later this year and then ease back down to the 2-3% range,” he said.

“The expected moderation in inflation reflects the ongoing resolution of global supply issues, the stabilization of commodity prices and the impact of higher interest rates.”

He also hinted at further increases over the next few months, but said that was not set in stone.

“The board expects to take further steps in the process of normalizing monetary conditions in the coming months, but it is not on a predefined path.

“The magnitude and timing of future interest rate increases will be guided by incoming data and the board’s assessment of the outlook for inflation and the labor market.

“The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”

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