Many homeowners expected property prices to fall as interest rates rose.
But the market has not been that simple.
Higher repayments are putting pressure on borrowers. At the same time, tight housing supply, population growth, changing buyer demand, and different local market conditions are still holding prices up in many parts of Australia.
Higher rates are putting pressure on borrowers
The Reserve Bank’s latest move has changed the mood around property.
After another 25 basis point increase, the cash rate is now sitting at 4.35%. Inflation has stayed above the RBA’s target band, with higher transport and energy costs adding more pressure to household budgets.
For borrowers, this is not just an economic headline.
It affects real repayments.
A 0.25% increase on a $750,000 mortgage can add about an extra $130 to a minimum monthly repayment. That means many homeowners are now looking more closely at their loan, their cash flow and whether their current setup still works.
For buyers, higher rates can also reduce borrowing power.
This means some people may not be able to borrow as much as they could a few months ago. That can push buyers into:
- a lower price range
- a different suburb
- a smaller property
- a longer wait before buying
This is why many people assume prices should fall when rates rise.
But interest rates are only one part of the picture.
The property market is not moving in one direction
Property prices are also shaped by how many homes are available and where those homes are located.
When there are not enough properties for sale, prices can stay firm even when borrowing becomes harder.
Recent market data shows national price growth has slowed, but the market is not moving in one direction. Sydney and Melbourne have shown signs of weakness, while Perth and Brisbane have continued to perform more strongly.
That matters for borrowers.
A national headline may say the market is cooling. But a buyer in Brisbane may be facing a very different market to someone in Melbourne.
The same can happen from suburb to suburb.
One area may have:
- more listings
- softer prices
- less buyer competition
- more room to negotiate
Another area may still have:
- limited stock
- strong demand
- faster sales
- less flexibility on price
This is where many people get caught. They watch the national market, but their mortgage decision is local and personal.
Supply is still keeping pressure on prices
New housing supply is also not keeping up.
Construction has been under pressure from labour shortages, higher costs and delays. This means fewer new homes are being added at the pace Australia needs.
That keeps pressure on the existing housing market.
It also helps explain why rising rates have not led to a broad property price fall.
Higher rates may reduce what buyers can borrow. But if there are still not enough homes available, prices may not fall in the way people expect.
Property prices are still being supported by:
- limited housing supply
- ongoing population growth
- constrained construction
- strong demand in some areas
For homeowners and refinancers, this creates a mixed picture.
Your property value may hold up better than expected. Or it may soften if your local market is affected by lower buyer confidence.
That difference can matter when reviewing a loan or looking at refinancing.
What experts are noticing
Tony Bice, Director of First Choice Mortgage Brokers, said many borrowers are trying to make decisions in a market that is sending mixed signals.
“Many people look at rates and property prices as separate issues, but they often work together. A higher rate can reduce borrowing power, while tight supply can still keep prices firm. That is why so many borrowers feel unsure. The market is not giving them one clear answer.”
That uncertainty is showing up in different ways.
Some homeowners are wondering whether now is the time to refinance.
Some buyers are waiting for prices to fall.
Some refinancers are worried about whether their property valuation will still support a better rate.
Others are trying to work out if they should use savings in an offset account, hold cash aside or change their loan structure.
These are not simple choices.
They depend on:
- income
- repayments
- equity
- savings
- loan size
- property value
- future plans
A real example: when waiting did not make things clearer
One couple with a young family decided to wait before buying because they expected property prices to fall after rate rises.
Their thinking made sense.
They did not want to overpay. They also wanted more time to build their savings.
But after six months, the homes in their preferred area had not fallen as much as they expected.
There were still very few suitable family homes listed. The properties that did come up were still attracting strong interest.
At the same time, their borrowing power had changed.
Higher rates meant their repayments would be larger. Their estimated loan limit was also lower than before.
So even though they waited for prices to soften, their own buying position became tighter.
What changed for them was not just the property market.
It was the full picture:
- prices did not fall enough to make a major difference
- their borrowing power reduced
- their repayments became more expensive
- their choice of homes became smaller
- their decision became more stressful
The issue was not that waiting was wrong.
The issue was that they were only watching property prices. They were not also tracking borrowing power, repayments and lender settings.
That is the gap many borrowers are facing now.
What borrowers often miss
Property prices do not only affect buyers.
They also affect homeowners and refinancers.
If a property value rises, a homeowner may have more equity. That can help when reviewing a loan or comparing rates.
If a property value falls, the opposite can happen.
A borrower may have less equity than expected. Their loan-to-value ratio, often called LVR, may increase. This can affect which rates or products they qualify for.
This is one reason some borrowers can feel stuck.
They may want to refinance to a sharper rate, but a lower valuation may limit their choices.
This valuation gap can become a real risk in softer markets. Borrowers with an LVR close to 80% may be more exposed if property values ease. A small change in valuation can affect whether they can access stronger pricing or whether their options become more limited.
More recently referred to as ‘mortgage prison’ which is the inability to refinance to a lower rate as the extra cost such as Lenders Mortgage Insurance outweigh the benefit.
This is why property prices matter even when someone is not buying.
They can affect a borrower’s ability to:
- move
- refinance
- restructure
- access sharper rates
- use equity
- compare loan products
The decisions are getting harder
Many people are now trying to weigh up several moving parts at once.
They are asking:
- Should I refinance now or wait?
- Should I buy before prices move again?
- Will my property value affect my options?
- Will my borrowing power change?
- Should I use my offset account differently?
- Should I stay with my current loan or compare what else is available?
These questions are harder because the market is not moving in a straight line.
Higher rates are making repayments more expensive.
Tight supply is keeping some prices firm.
Some cities are cooling.
Other cities are still rising.
Some borrowers are managing well.
Others are feeling the squeeze from higher repayments, living costs and changing lender rules.
The result is a market where waiting can feel risky, but acting too quickly can also feel risky.
Timing can change the outcome
Timing matters because small changes can have a real effect.
For example:
- a rate increase can lift repayments
- a valuation change can affect equity
- a delay can change borrowing power
- a shift in lender policy can affect whether a borrower qualifies
- a change in savings can affect deposit strength
- a new property listing can change buyer competition
Offset accounts are another example.
As rates rise, money sitting in an offset account can reduce the interest charged on a home loan. For example, if a borrower has $700,000 outstanding on their loan and $40,000 in offset, they may only pay interest on $660,000 instead of the full loan amount.
That does not mean every borrower needs the same loan setup.
It shows how one feature can become more important when rates change.
The same applies to refinancing.
Some borrowers may reduce repayments by moving sooner. Others may prefer to wait if switching costs or future rate changes could affect the benefit.
There is no perfect answer based on the market alone.
The right decision depends on the borrower’s position.
What This Means
Property prices are being driven by more than one force.
Higher rates are putting pressure on borrowing power. Tight supply is still supporting prices in many areas. Local markets are moving differently. Lender rules and property valuations are also affecting what borrowers can do.
For homeowners and refinancers trying to understand how changing prices, repayments and lender rules affect their loan options, the key issue is not just what property prices are doing.
It is what those changes mean for their own loan, equity and next decision.
That may depend on their:
- repayment buffer
- current rate
- loan size
- savings
- property value
- available equity
- future plans
The bigger picture is not simple
Property prices are not being driven by one thing.
They are being shaped by:
- interest rates
- housing supply
- buyer demand
- population pressure
- construction delays
- lender rules
- local market conditions
- borrower confidence
First Choice Mortgage Brokers are seeing more borrowers trying to make sense of all these moving parts. Many are not confused because they have ignored the market. They are confused because the market is harder to read than it used to be.
Higher rates do not always mean prices will fall.
Slower growth does not always mean waiting is safer.
Rising values do not always mean rushing is the right move.
The main takeaway is simple. Before making a major mortgage decision, it is worth understanding how property prices, borrowing power, repayments and loan structure work together. That bigger picture can help turn market noise into a clearer decision and that’s why it’s worth discussing your financial position with an experienced mortgage broker such as First Choice Mortgage brokers.
