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Property market update – February 2022


 Gap between Australia’s house and unit market reaches a record high 

According to CoreLogic, the disparity between house and apartment prices in January was 28.3%, the widest gap on record. Last year alone saw house values rise 24.8% whilst unit values increased 14.3%.

Traditionally, house price growth has outpaced that of units, however, CoreLogic notes that the disparity has been significantly higher than in previous cycles, driven by COVID-related demand and housing stock shortages. Read more

A rise in rates will trigger a fall in borrowing capacity

Following APRA’s move to increase the serviceability buffer from 2.5% to 3% in an attempt to slow the market down, the biggest challenge to borrowing capacity will be the looming increasing interest rates.

Undoubtedly, higher rates will affect family budgets the most, however, it is unlikely to force a mass-sell across Australia. More so, higher rates will reduce buyer demand in terms of their willingness to borrow large amounts, as well as reduce the amount people can borrow in the first place.

However, history tells us that if we are to see rates hike significantly (around the 3-4% mark) we would likely see bank lending relaxing followed by various buyer support programs to increase demand.

What is happening to interest rates right now?

Fixed rates are increasing

  • 3yr fixed rates have increased by 1 – 1.50% since October 2021, while variable rates have been dropping
  • The average 3 year fixed rate has increased from 1.99% to 3.39% while variable rates have decreased from around 2.79% to as low as 2.09%

Should I fix my loan?

  • It is expected that the RBA will begin lifting the cash rate as early as August this year with 3 rate hikes anticipated in the next 12 months
  • If each hike is 0.25%, this should mean variable rates will be closer to 3% in the next 12 months
  • With short term fixed rates (1 to 2 years) around 2.89%, this would protect you against these proposed hikes
Note that:
  • You generally cannot offset a fixed loan or make more substantial extra repayments
  • Fixed rate loans cannot be changed during the fixed term
  • Break fees can apply if you are to repay a fixed loan during the fixed term

See more 

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