Do low interest rates make houses more affordable?

Intelligent Investor

Independent Financial Research

In Australia most buyers, whether owner/occupier or investor, utilise plenty of debt. And all Australian mortgages are effectively floating rate—even if you fix the first five years of a 30 year loan and continue to refix every five years, you’re still at the whims of the interest rate market for the last 25 years of the mortgage. It doesn’t work this way everywhere. US borrowers mostly have fixed rate loans. Much of Europe has capped rates. Australian buyers get no such certainty. House prices have also doubled in many regions since 2007. But today’s mortgaged new buyer will, over the life of their loan, pay a price that cannot be determined today, and is uncapped. So I don’t think it’s right to assume that today’s low interest rates make today’s sky high prices more affordable. They might make the mortgage more affordable today, but what about three years from now? What about in 2025? (VIEW LINK)


Intelligent Investor
Independent Financial Research

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