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RBA suggests new homebuyers could ultimately benefit from higher rates

Higher interest rates have cut the maximum amount people can borrow and lifted their mortgage repayments but could ultimately benefit new homebuyers, according to a senior Reserve Bank of Australia official.

Jonathan Kearns, the RBA's head of domestic markets, said the central bank's rapid rate hikes have reduced borrowers' maximum loan size by about 20% and lifted repayments by a quarter.

While the immediate impact was an increase in the cost of owning a home, Mr Kearns said over time the decline in demand for housing and therefore housing prices meant a household would need a smaller mortgage to buy a first home or upgrade.

"Estimates suggest the net effect is that mortgage payments for new buyers would be higher for about two years as a result of higher interest rates," he told a property conference on Monday.

"But after that, the declines in housing prices and mortgage size begin to dominate.

"This exercise obviously abstracts from the many other factors influencing interest rates and housing prices, but it suggests that because higher interest rates reduce housing prices and so mortgage sizes, mortgage payments for new borrowers could ultimately be lower than if interest rates had not increased."

The RBA has lifted the cash rate by 225 basis points since May to 2.35%, in the fastest hiking cycle since 1994.

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Source: Realestate.com