How does rising interest rates affect my investment?

Economic growth, inflation and interest rates are inextricably linked. Apart from unforeseen mishaps, our economy behaves in a cyclical fashion, sometimes known as the “boom-bust effect”. Interest rates rise, plateau, fall, then bottom out, and eventually rise again. There are always clear indicators as to which part of the cycle the economy is placed. The Reserve Bank interest rate “hikes” and reductions are intended to smooth the trends. Fortunately for property investors, RISING INTEREST RATES and INFLATION are linked to RISING RENTS.

The clever investor uses prevailing economic conditions to best advantage. Interest rates have been on the rise in the past few years after bottoming out at some of the lowest levels on record. While interest rates are rising, given the strength of the current economic cycle and an acute shortage of rental properties in growth locations, rate rises can be offset with large rent increases, it is also possible to lock into a fixed rate term.

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