Keeping it Simple. The relationship to Interest Rates, Property Prices and your ability to buy a property.

Light it up!

Having been in the Property & Finance industry for well over 20 years I've often watched clients glaze over when some industry "professional" starts speaking a million miles an hour and using terms that clients clearly dont understand. It's a familiar frustration for potential customers also, they don't want to appear stupid or simply uneducated when it comes to money and so they sit there and don't say anything. But let's face it it's not their fault it's the "professional" assuming or simply unaware that those sitting in front of him arent following.

So with that in mind I'm deliberatly making this really simple. So please dont come back at me about what about this or that. The following is aimed at some simple basics and for an audience that does really want some concepts to grab hold of and then understand more from there.

Firstly, High school Economics. In a market supply refers to how much of a product is available, while demand indicates how much people want it. When demand exceeds supply, prices rise; when supply exceeds demand, prices fall. This balance determines the price at which goods are bought and sold. So this could be the market for the sale of granny smith apples or it could be the Property market.

So what are the things that affect supply and demand and have an affect on Property prices?

Interest Rates

Interest rates determine how much you'll pay each month on your mortgage. When the Reserve Bank of Australia (RBA) lowers interest rates, banks often follow suit by reducing their rates. This means your monthly repayments decrease, making it more affordable to borrow money.

More Buyers in the Market

With lower borrowing costs, more people can afford to buy homes. Banks use interest rates to adjudicate how much they are willing to lend you against your income. So interest rates go down, the bank says ok we'll lend you more. This adds more people to the market and creates more demand. More demand raises prices.

First-Time Buyers

While lower interest rates can make borrowing more affordable, rising property prices can make it harder for first-time buyers to enter the market. As more buyers compete for available properties, prices may continue to climb, potentially outpacing wage growth and affecting affordability.

Looking Ahead

The Reserve Bank's decisions will continue to influence the property market. While lower interest rates can stimulate demand and drive property prices higher, they also necessitate careful consideration of affordability and long-term financial sustainability for families and individuals.

For prospective buyers and investors, it's crucial to assess personal financial situations, consider potential interest rate fluctuations, and seek professional advice to navigate the evolving property landscape effectively.

As mentioned at the start. There are definetley some further variables and things to consider in lending and their affect on the property market however the above are some simple basics.

I really hope that helps.

P.S. The image I used here has nothing to do with this article, it's me doing some burning at our property last week. Was a lot of fun!

Andrew Nott