Impact of Interest Rates on Housing Affordability in Perth

Interest rates play a pivotal role in shaping housing affordability, and Perth’s property market is no exception. With rates holding steady but speculation about future movements, it’s worth examining how they influence affordability and what it means for buyers and the market overall.

1. The Current Landscape

The Reserve Bank of Australia has maintained the cash rate at 4.35%, which continues to impact borrowing costs. While this rate is higher than the historical lows of recent years, Perth’s relatively lower property prices have somewhat cushioned the blow for local buyers compared to those in pricier markets like Sydney or Melbourne.

2. Monthly Repayment Pressure

Higher interest rates mean higher monthly mortgage repayments, which can impact how much buyers can borrow. For example, a 1% increase in interest rates can reduce borrowing capacity by up to 10%. This has led to some buyers adjusting their expectations and looking at more affordable suburbs or smaller properties.

3. Rent vs Buy Dilemma

With rising rents in Perth, some residents face a tough choice between continuing to rent or taking on a mortgage. While buying may mean higher initial costs, it provides long-term stability and the opportunity to build equity, which is a compelling factor for many.

4. Investors’ Perspective

For investors, interest rate rises can impact profit margins. However, Perth’s strong rental yields and low vacancy rates make it a favourable market, even with slightly higher borrowing costs.

5. What’s Next?

Speculation about potential rate cuts in 2025 is adding an element of uncertainty. If rates do fall, it could reignite buyer activity and further drive up prices, especially in high-demand areas.

Understanding the interplay between interest rates and housing affordability is critical for buyers and investors navigating Perth’s market. Staying ahead of rate trends and seeking professional advice can help you make confident decisions.