Posted on March 15th, 2023

What a pause on Interest Rates could mean for Property Investors

The Reserve Bank of Australia’s recent spate of interest rate hikes might soon be heading for a pause. We have experienced 10 back-to-back interest rate rises over the eleven months since rate hikes started in May last year, culminating in a 3.6% cash rate in March. It has been the steepest rise of rate cycles since the 1990’s and it is the fastest tightening of cash rate since the late 80’s where we saw rises from 10.6% to 18.2% between January 1988 and November 1989.

Source: RBA, AMP

RBA Governor Philip Lowe has hinted that a possible respite may be on the horizon, depending upon other key economic factors such as unemployment levels and retail spending. In April the RBA plans to review the impacts of its monetary policy as well as the cumulative rise in interest rates, and could well decide to hit the pause button on further increases. This will be welcome news for property investors as it will provide greater stability for their property portfolios as well as allow them a chance to plan more effectively for the future.

Will Mitchell, Head of Property at Ironfish says “It is widely expected we are at or near the end of this interest rate increase cycle. Once investors and owner occupiers have clear certainty that interest rates will be cut or on pause, it will provide a significant amount of confidence to buyers currently sitting on the sidelines. This is likely to drive further buying activity in what is a very low listing environment, and this could see property values bounce back fast. It is worth noting – that despite the interest rate increases experienced to date, the most affordable quartile of properties nationally actually increased by 1.7% over the 12 months to February 2023 (CoreLogic).

This has been driven by an undersupply of property nationally and this can be seen very clearly in our rental markets which are at crisis point. With future supply remaining low, and the return of massive numbers of overseas migrants, smart investors are positioning themselves for the medium term, knowing that the short term impacts of interest rates will ultimately be drowned out by strong demand outweighing weak supply over the years ahead.”

What a pause on interest rates means for property investors

With either a cut or pause, in interest rates on the horizon, now is the time to take advantage of mortgage rates that still remain at historically low levels. A stable and low-interest rate environment is perfect for property investors to take the opportunity of consolidating their portfolio, refinancing, and potentially accessing more favourable terms from lenders.

As we inch closer to an end to rising interest rates, let’s take a look at what this could mean for Australian property investors and explore some key considerations that may help with your short-term and long-term investment plans.

The impact a possible interest rate pause could have on property values

A pause in the interest rate could lead to an increase in property values as investors seek out potential opportunities. With limited stock available, there is likely to be an increase in demand for property as more people become interested in investing. This will lead to property prices increasing. Savvy property investors are likely to take advantage of this situation by investing in property early and capitalising on the potential increase in value.

The prospect of a rate pause will lift housing market sentiment and local markets may soon experience an increase in activity. Property investors should keep an eye on what is happening in the market and be ready to act when they see an opportunity as prices could rise quickly.

It is important to remember that while it looks like rates are set to remain stable, there is no guarantee that this will be the case over the longer term. Investors should be prepared for the possibility that the official cash rate may rise again, so it is important to plan accordingly and ensure investments are structured in a way that minimises risks associated with any potential rises. For this reason, investors should consider the impact of their investment on their cash flow and budget accordingly to ensure they are able to service any difference between rental yield and mortgage payments.

What strategies investors can take to maximise their profits during a rate pause

A pause on the cash rate means that potential investors have more time to consider their investment objectives and determine whether it is the right investment for them. Ultimately, investing in property means not only keeping a close eye on trends within the current market but also staying abreast of changes in the economy and any potential shifts that could affect property prices. Additionally, keeping the interest rate steady may lead to a reduction in costs as banks will try to remain competitive in a historically low-interest rate environment.

One strategy investors can take is to review their investment home loan and, if possible, refinance their existing loan for one with better terms. This may include securing a lower fixed rate or moving to a variable rate that offers a lower interest rate. Investors who are looking to purchase an additional property during a rate pause should identify their ideal loan-to-value ratio before taking out a new loan.

By keeping your LVR thresholds in check, you can ensure that you’re always getting the best rate possible. A lower loan-to-value ratio makes it easier to qualify for more competitive terms, so it pays to be aware of where the bank’s risk levels are set. Planning ahead, and taking proactive steps towards ensuring an attractive LVR profile is the key to securing favourable loan rates — and maximising returns on your investments. When interest rates are low, investors should be mindful of the risk of over-borrowing and try to stay within their capabilities.

The importance of understanding current market conditions for successful investing

While the RBA’s latest rate rise of 0.25 of a percentage point to 3.6 per cent looks set to be it for now, with inflation still high, more increases could be likely. It’s important to be aware of how this and other macroeconomic factors could affect your property portfolio. By taking into account factors such as population growth, the unemployment rate, and the availability of finance, investors can make better-informed decisions when it comes to investing in property.

With a further tightening on Australia’s rental market tipped as migration and housing supply remain tight, investors need to understand the dynamics of each individual market in order to make smart decisions about where and how they choose to invest. Doing the research required to understand the local market and its current conditions is key to a successful investing strategy in any environment.

Ironfish’s MyCity Reports and MyMarket Videos provide an ideal starting point for property investors looking to assess the macro-level trend in Australia’s major cities: Brisbane, Gold Coast, Melbourne, Perth and Sydney. These reports break down the bigger picture of a city into five key pillars – economy, infrastructure, population, lifestyle and employment opportunities – giving investors critical insights on how these factors might influence future trends on property prices or rents. By understanding the unique characteristics of each market, you can take a more considered approach when deciding where to invest your hard-earned money in creating a property portfolio tailored to your individual investment goals.

Tips for making sound property investment decisions amidst a rate pause

Making sound investment decisions during a rate pause can be tricky, but it doesn’t have to be intimidating. To ensure success, focus on portfolio diversification, budget management and understanding the market you’re investing in. By leveraging the equity accrued in existing properties, and carefully monitoring cash flow, investors can take advantage of the potentially lucrative opportunities afforded by a period of extended rate stability.

Real estate investing is a long-term game. A rate pause provides an ideal opportunity to carefully plan each move of your strategy, making sure you stay ahead of the curve and make the best decisions possible.

By leveraging these tips, investors can take advantage of a period of relative stability in the market, and create sound strategies that will set them up for success when property prices begin to rise once again.

Final thoughts

While a pause on interest rates can have an effect on property values, there is a set of smart strategies that investors can use to maximise their profits. Planning ahead is key – do your research, make sound investments, and be strategic with your portfolio reallocations. By reviewing your investment loans now, you can make sure your cash flow is primed and ready to take advantage of any future market movements. Ultimately, by leveraging current market trends you’ll be able to identify promising real estate opportunities to capitalise on over the long-term.

At Ironfish, we offer investors tailored advice and strategies to make the most of the current market conditions. To find out more about our services, please get in touch with an Ironfish Property Investment Strategist today.

We’re here to help you build your dream property portfolio by leveraging Australia’s ever-changing real estate landscape.

May 14th, 2024 / How to invest, Financial wellbeing

How to fast-track your wealth-building strategy

Without a plan, building wealth can be a slow and uncertain process. But with the right strategy, you can fast-track your financial goals and achieve wealth in less time. Real estate investment stands as a reliable, time-tested method to grow long-term wealth in a relatively short period. Real estat

May 7th, 2024 / Data & research, How to invest, Property trends

Investing in new vs established properties – Which is the best?

With the advent of reality TV shows like The Block, many property investors are fixed on the idea of finding a ‘fixer-upper’, a diamond in the rough that can be transformed into a lucrative investment. The belief is that by investing in an established property, fixing it up and then sell

May 1st, 2024 / Message from our CEO, How to invest

The two-hand theory to building your fortune through property

We all know that to live a healthy, fulfilled life, one has to find balance. Balance between work and play, exercise and rest, spending time with people and spending time alone. So, what if we applied this theory of balance as the key to living a wealthy life? This is what I call the Two-Hand Appro

April 29th, 2024 / How to invest, Financial wellbeing, SMSF

Using your SMSF to invest in property

It appears as though the self-managed superannuation fund (SMSF) revolution in Australia is now in full swing. Currently, approximately 1.1 million Australians manage their own superannuation through SMSFs. According to Deloitte’s 2022 data, Australian males aged 45 to 49 typically have $224,2

April 16th, 2024 / Data & research, Equity

Manufacturing Instant Equity Through Property Investing

Have you ever wondered how some investors seem to magically make money in real estate right after purchasing a property? The secret isn’t anything supernatural or even complicated. It’s simply about understanding the concept of manufacturing instant equity through property investing. By