Powered by momentummedia
nestegg logo
Powered by momentummedia
nestegg logo
nestegg logo

Save

Planning around rate rises beats panicking about them for FHBs

  • October 05 2021
  • Share

Save

Planning around rate rises beats panicking about them for FHBs

By Fergus Halliday
October 05 2021

If you’re a first home buyer worried about rising interest rates, the worst thing you can do is panic.

budgeting

Planning around rate rises beats panicking about them for FHBs

author image
  • October 05 2021
  • Share

If you’re a first home buyer worried about rising interest rates, the worst thing you can do is panic.

budgeting

If you’ve started paying off a home loan, then there’s no excuse for not thinking ahead when it comes to interest rates.

Right now, interest rates are at a prolonged and historic low. At some point, that’s going to change.

For many potential and current first home buyers, this will more likely than not be before they finish paying off their home loan. Interest rates can’t get much lower, so they’re going to rise. And when they do, those affected will want to be ready.

Advertisement
Advertisement

“With house prices continuing to soar and so much emphasis placed on saving up a deposit, it can be easy for first home buyers to get blindsided by the fear of possible future interest rate spikes,” WLTH co-founder Drew Haupt said.

Rather than run for the hills when interest rates rise, Mr Haupt recommended preparing for the inevitable by staying informed, educating themselves about how future rate rises might impact on their budget, and working around those possibilities.

When it comes to interest rates, knowledge is power. If you’re too scared by the risk involved to do the research, you’re going to make worse decisions than the alternative.

“When looking at interest rates with fear, many first home buyers put themselves in a risky position,” Mr Haupt said.

He said that many potential buyers fall into the trap of putting off their ambitions to own a home until they are more confident about interest rates.

“It can be hard to predict when interest rates will rise or fall, so for first home buyers who are eager to enter the market, there is no better time than now,” Mr Haupt said.

He said that this approach prevents first home buyers from feeling out of control when it comes to rates and their investment. Over time, it helps them build confidence in their own financial decisions.

Mr Haupt also emphasised the importance of remaining realistic when it comes to budgeting.

While many people start to “tighten their belt” when they sense interest rates rises are looming, Mr Haupt said that it’s equally important to put money aside for an emergency fund. He said that having that fallback in place will allow them to face the possibility of rate rises with assurance rather than caution.

For first home buyers specifically, he said that they need to think carefully about how they manage and keep track of their income sources, fixed costs and variable expenses. If possible, they need to think ahead.

“Rather than running for the hills when interest rates rise, it’s important that first home buyers do their due diligence and build confidence by staying informed, educating themselves about future rate rises and creating a realistic budget,” he said.

In its most recent call, the Reserve Bank of Australia held the cash rate at a record-low 0.1 of a percentage point for the ninth month in a row.

Previously, the RBA had said that it wouldn’t look to raise the cash rate until certain targets were met when it comes to inflation and wage growth.

However, following the most recent rate call, AMP Capital economist Shane Oliver downplayed the possibility of those conditions being met anytime soon.

“The lockdown, and its hit to economic activity, has further delayed the time when the effective RBA conditions — full employment and 3 per cent or more wages growth to sustain 2–3 per cent inflation — will be met to justify a rate hike,” Mr Oliver said.

Planning around rate rises beats panicking about them for FHBs
budgeting
nestegg logo

Forward this article to a friend. Follow us on Linkedin. Join us on Facebook. Find us on Twitter for the latest updates
Rate the article

About the author

author image

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times. 

About the author

author image
Fergus Halliday

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times. 

more on this topic

more on this topic

More articles

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.