If you’re thinking of starting a renovation project, you may be wondering how the rising interest rates will affect you. In this article, we’ll walk you through the changes to interest rates and what you can do to ensure your project is a success.
The Reserve Bank of Australia has announced several major increases in interest rates. After an all-time low during covid, these increases are a significant change for homeowners in 2022.
Interest rate hikes are a major influence on property cycles, as access to home loans and repayment are directly impacted. Let’s look at what these changes mean for those who are trying to build their dream home.
Why are interest rates rising?
The RBA has three major goals: price stability, full employment, and the economic prosperity and welfare of the Australian people. To achieve this, they set an inflation target of between 2% and 3%. Increasing interest rates is a way to curb inflation.
What happens when interest rates rise?
The goal of a cash rate rise is to dampen inflation by cooling spending activity. When the cash rate is increased, the cost of borrowing for lenders is higher, and that cost is passed on to borrowers in the form of interest rates.
This means households will have tighter budgets. They will have less money available to them for non-essential items because more of their money is going towards keeping a roof over their heads.
What does it mean for me?
If you’re looking to buy a home, you’ll have less money available to borrow than before. So if house prices stay the same (or increase), you’ll need to aim for something a bit cheaper or save for longer.
If you own a house and are paying off a mortgage or looking to renovate, it means you’ll have to pay more on any loans you currently have.
Should I still renovate?
Most homeowners need to take out a loan in order to renovate their homes. The cost of these loans rise and fall with the economy. This means that the sooner you apply for a loan and start your project, the better!
You will have the option of a fixed rate mortgage at a lower rate or a variable rate mortgage which will climb as the RBA rate does. Either way, the sooner you finance your home renovation, the less total interest you will pay.
Another factor to think about is how much you will have to pay for your renovations. As the economy improves, you will have to pay tradesmen more, meaning the overall cost of your project will increase.
Remember, if your home is in need of repairs, it’s best to act sooner rather than later. Even a small crack or leak can lead to significant structural damage if left unattended.
Don’t wait to renovate! Get started today.
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If you have a renovation project in mind, we’re Brisbane’s building experts. Whether it’s a
Queenslander, new build, house raise or extension, we can help you.
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