Home Loan Interest Rates Expected to Rise in 2022: How Can Buyers Protect Themselves?

With home loan interest rates at record lows in 2021, the message is clear — rates cannot go any lower and are instead likely to increase. While rate increases were originally projected to occur in 2024 at the earliest, it now looks like this will not be the case. Unforeseen changes to the financial landscape here in Australia have made it likely that banks will start to raise interest rates before this projected date.

In fact, this is more than just likely. It’s almost a certainty. The Reserve Bank of Australia — who initially floated the 2024 interest rate timeline — has said that they will be increasing interest rates earlier than scheduled in the light of growing wages and an improving labour market. However, the Commonwealth Bank of Australia has said that they expect interest rates to rise even sooner, possibly beginning in November 2022.

As we can see, there is an element of confusion in the marketplace. Perhaps interest rates will rise at some point over the next couple of years, or perhaps they will begin to rise over the next 12 months. One thing is clear, however — the needle is only going to be moving one way. Interest rates will be going up before 2024. It’s just a case of precisely when, and by how much.

So, where does this leave homebuyers? In particular, where does this leave first time buyers who are having to borrow the most capital to get themselves on the first rung of the property ladder? It leaves them in a tricky situation, but one that can be navigated with the right approach.

Protecting Against Interest Rises

It sometimes feels as if the odds are always stacked against homebuyers. Interest rates rise and fall, along with house prices, and the buyer simply has to yield to these market forces. However, this is not necessarily the case. Homebuyers can take steps to protect themselves against rising interest rates.

Fixed-Rate Mortgages

Perhaps the most obvious way to protect yourself against mortgage interest hikes is to apply for a fixed-rate mortgage. With this kind of mortgage, you are effectively locking your interest rate in over a longer period of time. This means you are not exposed to interest rate increases, but it also means you are not able to benefit from falling interest rates in the future. As it looks like these interest rates will increase for the foreseeable future, a fixed-rate product could be a good option at the moment.

Mortgage Pre-Approvals

With a mortgage pre-approval, you are locking in a mortgage interest rate before the mortgage term begins. This enables homebuyers to find great low rates earlier and then protect these rates ahead of the move into their new property. This could be a useful strategy, especially when we consider that the timeline for rate increases has not yet been finalised. While interest rates increases are expected before 2024, they could come as early as November 2022, or even sooner. Pre-approvals remove this element of uncertainty.

Borrowing More, Sooner

As it looks likely that these extremely low interest rates won’t remain low for long, it may be in the interest of homebuyers to take on more debt sooner rather than later — effectively striking in the market while the iron is still hot. This strategy is not without risks, but we can see its benefits in the mortgage repayment analysis conducted by RateCity. This analysis found that mortgage repayments in Sydney in October 2021 were 18% higher than 11 years previously, despite the fact that the median house prices were more than double those of the same period of 2010. Basically, with a careful and well-considered approach, now could be a good time to get more from a mortgage.

Get Expert Assistance from Sydney Brokers

The team at Sydney Brokers is perfectly positioned to help you find the mortgage products you need to make your move in the market. We can connect you with the array of lenders and products required to achieve choice in the market, giving you the best possible chance to find the interest rates and terms that best suit your needs. Reach out to the team today to get started.