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Robust Queensland market to shake off rate rise

The Queensland property market is well positioned to handle this week’s cash rate increase from the Reserve Bank (RBA), according to the Real Estate Institute of Queensland (REIQ).

REIQ CEO Antonia Mercorella said she expects more rate rises ahead to tackle record-high inflation, however market conditions and external factors remain favourable in Queensland.

“We know that consumer confidence is key, and this move by the RBA will certainly make people stop and think more carefully about how much they are prepared to borrow, because it’s a timely reminder that interest rates can and do go up,” Ms Mercorella said.

“While on the face of it, it’s not an insignificant rise, in the grand scheme of things interest rates have been at historic lows for some time and are still very low.

“This is also where our relative affordability is an advantage, as our average home loan rate is much lower than in capital cities like Sydney and Melbourne, and so the impact will be felt less here.

Ms Mercorella said demand across Queensland remains high, which will add stability to the market.

“We remain confident in the resilience of the Queensland market because the need and demand for housing is irrespective, and an interest rate rise simply causes people to rethink what they are prepared to spend and how big of a loan they are prepared to enter into,” she said.

“So, it might cause some people to adapt their expectations and start at a more modest level, for example, considering buying an apartment instead of a freestanding house to be able to get their foot comfortably on the property ladder.”

Ms Mercorella said the 25 basis point increase wouldn’t impact the majority of borrowers in the short term.

“Fortunately, we’ve also had what you could call a mortgage honeymoon during COVID, so those who have been prudent in saving will be able to fall on those reserves and absorb the increase,” she said.

“On average, we’re seeing people have a savings buffer of around four years up their sleeve.

“Last year the banking regulator APRA introduced some macroprudential changes in terms of the stress test that banks must apply when assessing loan applications, raising it from 2.5 per cent to 3 per cent – which in practice means banks could now assess new borrowers’ ability to repay a debt using an interest rate of about 5.75 per cent. 

“This ensures there’s a bit of fat there in case of interest rate hikes.”

Ms Mercorella acknowledged that the first rate hike in more than a decade was a surprise for many.

“There are some that will be experiencing an interest rate rise for the very first time, and that stands to reason that it might frighten that cohort, particularly when the public were given assurances that the rate wouldn’t go up until 2024,” she said.

“So whilst it’s disappointing to see this earlier than expected, nonetheless interest rates are still very low and most loan holders are prepared with strong financial reserves to service their mortgages.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.