Australian home buyers could benefit from higher rates, central banker says

A worker stands on scaffolding at a construction site for a new residential complex in Sydney, Australia, February 20, 2018. Picture taken February 20, 2018. Picture taken February 20, 2018. REUTERS/David Gray

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SYDNEY, Sept 19 (Reuters) – Australians looking to buy a new home could actually benefit from rising interest rates as they lower the price of housing enough to ultimately result in lower mortgage payments than they would be at otherwise faced, a senior central banker said on Monday. .

Speaking at a housing conference, Reserve Bank of Australia (RBA) Deputy Governor Jonathan Kearns said the 225 basis point rate hikes already implemented could lower prices by as much as minus 15% over a two-year period, while reducing the maximum loan size for borrowers. by about 20 percent.

“Estimates suggest the net effect is that mortgage payments for new buyers would be higher for about two years due to rising interest rates,” Kearns said.

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“But after that, declines in house prices and mortgage sizes start to dominate,” he added. “This suggests that because higher interest rates reduce house prices and therefore the size of mortgages, mortgage payments for new borrowers may ultimately be lower than if interest rates had not increase.”

The central bank has faced widespread criticism for raising rates for five consecutive months to 2.35%, after predicting last year that rates were unlikely to rise before 2024.

As a result, the housing market cooled quickly, with data from property consultancy CoreLogic showing prices fell 1.6% nationwide in July from June.

It was the biggest monthly decline since 1983 and dragged annual price growth to 4.7% from a peak above 21% at the end of last year.

Kearns also noted that about 35% of housing credit is fixed rate debt, and these borrowers would not face increased interest charges and loan repayments until that rate expired. fixed, probably from next year.

Kearns pointed out that many factors other than interest rates affect house prices, including income growth, migration and construction costs.

“So overall, we know that higher interest rates will tend to drive down residential and commercial real estate prices, but there is considerable uncertainty about the magnitude and even the timing,” Kearns said.

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Reporting by Wayne Cole; Editing by Diane Craft

Our standards: The Thomson Reuters Trust Principles.

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