Lower demand, not defaults to trigger house price falls

Lower demand for housing as a result of higher interest rates and tighter lending is more likely to triggerthan any widespread mortgage defaults caused by the rising cost of credit, experts say.

“Higher mortgage rates might put some people off purchasing while prices are still quite high, so prices are more likely to come down off the back of successive increases in the cash rate.”to rise by 1 percentage point by the end of the year and by another percentage point next year, with the first increase tipped to come as early as Tuesday.

“Rising interest rates will significantly decrease how much the bank will let people borrow. This will have a flow-on effect on property prices, as many prospective buyers will no longer be able to bid as high.” Rough estimates by AMP Capital suggest that a 1.5 percentage point to 2 per centage point rise in mortgage rates would reduce home buyer borrowing power and the ability to pay for a house by 10 to 15 per cent.“Demand for housing is going to be affected immensely, simply because people won’t be able to borrow as much as they did in the past,” said Shane Oliver, AMP Capital chief economist.

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