The RBA cash rate rise to 4.35% is something every property investor in Australia should understand.
It is the third rise this year and we wanted to break down why it happened and what it means for you.
Why did the RBA raise the cash rate?
The short answer is inflation. Prices are still rising faster than the RBA would like, currently sitting at 4.6%, which is well above their 2-3% target.
The conflict in Iran has pushed oil prices from around $70 a barrel to over $104 a barrel, triggering the biggest monthly jump in petrol and diesel prices since records began. Higher fuel costs push up the price of almost everything, and businesses are already passing those costs on to customers.
On top of that, rents are rising, new home prices are climbing, and the jobs market remains strong. Raising interest rates is how the RBA slows it all down.
What does the RBA cash rate rise mean for property investors in Australia?
Your lender may pass this rise on to your home loan rate in the coming days. If you have an investment property, the same applies to your investment loan.
That said, rate rises affect owner-occupiers and investors differently. Owner-occupiers make decisions based on lifestyle and emotion. So, when rates rise, their sentiment shifts quickly.
Whereas, property investors, tend to focus on the fundamentals: rental demand, population growth, supply and long-term value. And right now, all four of those fundamentals are pointing in the same direction.
Rental demand is at record levels. The national vacancy rate sits at just 1.1%, which is well below the 3% considered balanced. There are simply more people looking for homes than there are homes available.
The population is growing fast. Australia added over 306,000 people through net overseas migration in the past year alone. The vast majority enter the rental market first, and that puts direct pressure on an already undersupplied housing market.
Housing supply is not keeping up. According to AMP Chief Economist Shane Oliver, Australia is currently short between 200,000 and 300,000 homes after years of under-building. That gap does not close quickly.
And long-term value? Australian property has held its value through every tightening cycle in living memory. The current one is not historically unusual, but it just feels that way when you are in the middle of it.
None of this means rate rises are comfortable. But for investors who are well-structured and thinking long-term, the underlying case for Australian property has not changed.
But for investors who are well-structured and thinking long-term, the story has not changed:
- More people.
- Fewer homes.
- Stronger rental demand.
That is not a market in trouble. Rather that is a market with real momentum behind it.
What should property investors in Australia do after an RBA cash rate rise?
The most important question is not whether rates have gone up. It is whether your loan is structured in a way that gives you enough room to move when rates move.
A rate rise does not affect all investors equally. It depends on your loan structure, your buffer, and how your debt is set up.
Talk to the team at Austral Financial
If you have questions about what today’s RBA decision means for property investors, we are here to help.
Send us a message, or call us, and one of our team will be in touch to talk it through.
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