The Ramifications Of This Week's Interest Rate Rise

With interest rates rising again last week, the gap between what a seller wants and what a buyer is prepared to pay ( or can afford to pay ) continues to widen.

Whilst this pattern is typical of all property downturns, the harsh reality is that many sellers have already declined an offer that they are unlikely to see again. A decision that they will most likely regret as prices continue to decline.

There was a very insightful article printed in yesterday's Gold Coast Bulletin that discusses the ramifications of this week's interest rate rise. The article focuses on the reduction in borrowing capacity that a buyer is now faced with.

The full article is below as well as a cross section of property reports from around the country from the past week that dissect what the latest interest rate hike means for existing mortgage holders as well as for the housing market in general.

We would also recommend that you take note of Corelogic's National Housing market video update for February 2023. The video link is below our lead article this week. 

Please see below Saturday's GC Bulletin  article written by Samantha Healy.

RATE RISES CUT LOANS BY UP TO $500K

QUEENSLAND buyers have seen as much as $511,000 wiped from their borrowing capacities since April last year, with first-home buyers and families taking the biggest hit to their budgets.

Analysis by Canstar and News Corp has revealed that first-home buyers with a borrowing capacity of $500,000 and a maximum purchase price of $625,000 just 10 months ago, can now only borrow $372,000 and spend up to $465,000.

Ten months ago, those same first-home buyers could shop for a house in 157 suburbs across Greater Brisbane, but that number has shrunk to just 34 suburbs, analysis of the latest REA Market Trends report shows.

Buyers on that budget would have little to no options on the Gold Coast, with only Stapylton and South Stradbroke listed as coming under their new maximum budget of $465,000.

It is not much easier for families who, with a borrowing capacity of $750,000 and maximum purchase price of $937,500 just 10 months ago, have taken a massive hit to their budgets.

Now those same buyers can borrow $558,000 and spend up to $697,500, according to Canstar. Those with heftier budgets have also taken a walloping, with a borrowing capacity of $1m (maximum purchase price of $1.25m) shrinking by $256,000.

Borrowing capacities of $1.5m (max purchase price of $1.875m) and $2m (max $2.5m) have fallen by $383,000 and $511,000 respectively.

Canstar’s Steve Mickenbecker said the interest rate rises were having a “severe” effect on borrowers who bought near the top of the boom market, with big loans and no time to build up a buffer. “Interest rates don’t discriminate on the basis of income when it comes to diminution of borrowing power, with borrowers at all income levels now finding that they can no longer afford the loan size they expected,” he said.

“There has been a price correction and the decline in purchasing power has no doubt contributed, but the price fall is nowhere near the 25.5 per cent fall in purchasing power.”

Mr Mickenbecker said the result could see buyers “chasing each other down the price ladder rung by rung”, with first-home buyers and low-income earners likely to find themselves crowded out again.

RE/MAX Bayside Properties agent Sam Neilson recently relisted a Wellington Point property after its previous contract crashed on finance.

“I have had a few clients decline on finance in recent months,” she said. “They were pre-approved for an amount that just didn’t stack up when they went for the contract.

“It is exceptionally tough for buyers, and while vendors have softened a bit, they aren’t panicked as they realise the market is holding up quite well.”

Ray White chief economist Nerida Conisbee said the changes would be hardest felt in first-home buyers suburbs and potentially new home estates.

“We have also seen new home loan approvals drop dramatically because stock is low but capacity has just dropped considerably,” she said.

Mr Mickenbecker said that while it was tough, buyers could counter some pain with lower interest rate loans.

“Banks have started to reserve their best rates for those with generous equity in their house, loan size that doesn’t test the limits of affordability and a track record of being ahead with their repayments,” he said.