Ninth consecutive interest rate rise driving creative property solutions

February 8, 2023

Mortgage holders were bracing themselves this week as the Reserve Bank of Australia (RBA) raised interest rates by 0.25% on 7 February 2023. It was the ninth consecutive interest rate rise given by the Bank leaving many looking at the property market, wondering what to do next.

Granny Flat Wollongong -1

In Australia, the Reserve Bank of Australia (RBA) sets the official cash rate, which is used as a benchmark for interest rates on various loans and savings products. When the RBA increases the cash rate, it makes borrowing more expensive and can lead to higher mortgage repayments for borrowers and higher returns for savers.

These interest rate rises are generally regarded as a response to inflationary pressures, as the cost of living rises, with electricity, fuel, many grocery essentials – and rents rising for Australians as a result of global issues like post covid - supply chain disruption and the war in Ukraine.

The impact of an interest rate rise can be different for individuals, businesses and the overall economy, with some potentially benefiting while others may be negatively affected. No matter the situation, with rates continuing to rise – and more expected, individuals and families are considering their options.

Aussie families looking for options

Elizabeth Brown, 34, from Long Jetty has a good amount of equity in her home – about 50% after a good few years of paying it off. She has two young children and is about to head back to work in  retail after maternity leave. Her husband, a plumber, is the main income earner but with household costs rising and mortgage costs up an additional $350 a month – there’s nothing extra for them to save for ‘the next thing’ in their lives.

Elizabeth says “with the rental market the way it is, we know we could get between $650-700 per week for our home. We have started looking at Granny Flats and asking about using the equity in our home to build it. We figure, a Granny Flat can be up in 6 months – if we move into that and rent out the front we might just be back on the front foot by the time we come out of what looks like a tough few years ahead”.

One benefit for those in a position to consider it like Elizabeth, is the ease with which Banks will lend for smaller loans and against existing equity. Where large loans would be under scrutiny with rising interest rates, smaller loans that are building another income generating asset could be looked on favourably by the banks. The rate of loans as dropped considerably since rates started rising – and to entice borrowers some banks are even offering cash back and other deals to take advantage of.

Happy family outdoors. Beautiful smiling mom with children two kids - girl and boy. Shot with shallow depth of field.
Cubitts

Managing Director of Cubitt’s Granny Flats and Home Extensions, Kate Cubitt says “we’re seeing clients come to us, asking for costs and feasibility studies, with the idea that having a granny flat on the property can be a way to offset the impact of rising interest rates”.

But it’s not just homeowners looking to become landlords or increase the value of their investment coming through Cubitt’s doors – Kate says, “Gen Z is looking at house prices, looking at mortgages, and parents in a position to do so are suggesting they come home. Building a Granny Flat in mum’s backyard is a flexible addition to family lifestyle that gets young adults off the rental rate race now – but also provides options for owner later in life – renting one of the homes out for income, or even retiring”

With CoreLogic data in 2019 suggesting that the addition of a Granny Flat could add as much at 30% to home value, there’s more than one way a Granny Flat is helping to offset the impact of rising interest rates.

Families who are worried that interest rate rises will continue to rise, and stay there for some time will be looking at the resource they have available to maintain their lifestyle. Kate finishes on a key point – “A Granny Flat is about having options. Doing the cost and feasibility is about having options. No one is rushing into decisions until they have done research, but families are coming to us to imagine the possibilities, and help them lay out a plan

 

Cubitt’s offer a completely free feasibility study and quote based on detailed onsite assessments. They operate across the East coast of NSW from Taree to Moruya, west into the highlands and Blue Mountains and cover all of the ACT. Visit a showroom or call 1300 721 150.

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About Kate Cubitt

Kate is Managing Director of Cubitt's. She is an experienced company director, avid investor and keen to share the financial insight she's gained being a female leader in the building industry.