Louisa Rebgetz and Rebecca Hyam 04 May 2022

The Reserve Bank’s 25-basis point increase is just the first of many on the horizon, and Queensland home owners need to brace for higher home loan repayments over the next 18 months, a leading property analyst has said.

The central bank’s rate rise was its first in more than 11 years, taking the official cash rate target to 0.35 per cent.

CoreLogic research director Tim Lawless said while a single increase would be manageable for most people across Queensland, further rises would put pressure on household finances.

“The median value of a house in Brisbane is about $771,000, so the typical loan size if someone’s got a 20 per cent deposit, would be nearly $617,000.

“This latest 25 basis-point rate hike means the typical mortgage for a new borrower would be about $81 higher per month.

“But of course, as we see rates rise more – say for example if we see interest rates go up by 100 basis points — then that’s adding $332 per month to the typical mortgage which is becoming more material.”

Mr Lawless said higher mortgage repayments would become “the new normal” for borrowers in 2022.

“It won’t be too long before we see the cash rate normalising, getting back to average levels, or maybe even getting beyond that.”

Queensland’s housing market ‘nation leading’

Property Council of Australia chief executive Ken Morrison said that traditionally interest rate hikes had a cooling effect on the housing market, however demand continued to outstrip supply in parts of Queensland.

“When you do have interest rate increases, that does have a dampening impact on sentiment, so I would expect whether you are in south-east Queensland or elsewhere in the state that will come into play,” Mr Morrison said.

“There is also supply and demand and supply is a real challenge.”

He said the COVID-19 pandemic saw people moving to regional areas and an influx of home owners from southern states to south-east Queensland.

Mr Lawless described Queensland’s housing market as “nation leading”, with values surging in the last year.

“We’re seeing, for example, Brisbane housing values are rising at nearly 6 per cent, quarter-on-quarter, and across regional Queensland, it’s about the same rate – it’s about 5.8 per cent quarter-on-quarter.

“What that means is somebody in Brisbane has added about $175,000 to the median value of their home just over the past 12 months.”

Mr Lawless said rapid interstate migration was the main driver behind the strong demand for housing, especially in south-east Queensland.

But he added that over time, the combination of higher interest rates and elevated house prices would exacerbate affordability issues and naturally slow the state’s housing market.

“I think the simple reality is more and more people will be looking towards the medium to high-density sector,” Mr Lawless said.

“Even just over the past 12 months in Brisbane, unit values have risen at about half the rate of house values, so it’s a much more affordable alternative.

He said the higher density market would also attract property investors.

“Yields on units are much higher, they tend to be in Brisbane at least at 4.6 per cent compared to houses, which are yielding about 3.3 per cent, and the buy-in price is much more affordable as well,” Mr Lawless said.

“Using Brisbane as an example, the typical house price in Brisbane is about $880,000 and the typical unit price is about $490,000, so it’s a saving of hundreds of thousands of dollars to get into a unit instead of a house.”

Businesses may ‘delay spending plans’

Professor Shaun Bond, from the University of Queensland’s Business School, said the Reserve Bank’s decision would also increase the cost of borrowing for businesses, which comes after several very tough years, due to the COVID-19 pandemic.

Professor Bond said he expected businesses might pull back on spending.

“They will be looking closely and may potentially put projects on hold or delay spending plans,” he said.

He said the rate rise was unlikely to have an immediate impact on the construction industry, which was struggling with building supplies and increased costs.

Some economists predict interest rates to reach 2.25 per cent by the middle of next year and what happens with wage growth will be critical for households.

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