Interest rates are low at the moment. This has been great for most of us – this means cheaper credit. For those of us who arranged mortgages and bought property when rates were higher, we can either pay smaller mortgage repayments now or we can apply the same amount to pay off more principal and reduce our mortgages faster.
Many people have taken advantage of the low rates to enter the property market. Prices are rising, interest rates are low and now seems like a great time to buy. And it is – but only if you can afford it.
Just as property prices are cyclical, interest rates rise and fall then rise and fall. The low rates we’re enjoying now won’t last. We don’t know when they’ll rise, but we can be sure that, at some stage, it won’t be possible to find a lender who will offer less than 8% per annum.
Does this mean that you shouldn’t buy now? No! It just means that you should factor in rising rates when deciding whether an individual property is affordable. A good rule of thumb is to add 3% per annum to the average mortgage rate. Look at the potential yield and the potential capital gain. Will the property still have a decent cashflow? Will it still help you reach your goals? If not, you may need to find a different property, or even consider an alternative financial plan.
Talk to us – we can help you with your planning, and we can walk you through choosing and securing properties that will serve you well now and long into the future.