Interest Rates - What is your breaking point?

Discussion in 'Property Market Economics' started by smokyjoe, 17th Jul, 2015.

Join Australia's most dynamic and respected property investment community
?

Maximum Interest rate you can service

  1. I already can't service my debt

    3 vote(s)
    6.0%
  2. 5%

    1 vote(s)
    2.0%
  3. 6%

    2 vote(s)
    4.0%
  4. 7%

    10 vote(s)
    20.0%
  5. 8%

    4 vote(s)
    8.0%
  6. 9%

    4 vote(s)
    8.0%
  7. 10%

    12 vote(s)
    24.0%
  8. I'm loaded. I don't care!

    14 vote(s)
    28.0%
  1. C-mac

    C-mac Well-Known Member

    Joined:
    26th Jun, 2015
    Posts:
    1,348
    Location:
    Sydney
    Hhmmm for me, my breaking point is about 8% (assuming current rents, which as @Biz said, would likely increase in such a scenario).

    In Calenear 2016, if there is even the first IR increase, I'll likely fix many of the variable loans that I have.
     
  2. HUGH72

    HUGH72 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    3,022
    Location:
    QLD
    That was my thoughts as well, lots of potential forced seĺlers at 8%.
     
  3. Fargo

    Fargo Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    1,304
    Location:
    Vic
    That is only BS from spruickers, There are plenty of markets that have had have gotten lower vacancy rates as interest rates fall and had substantial yield increases . I have had to reduce rents when interest rates have risen on some property. Tenants have debts too if interest rates go up they have less money to spend. If you could just put up rent to cover your cost, you would have to wonder why their is N/geared property. Most investors buy property for the long term and don't buy and sell every time the interest rates change direction. increased interest rates means increased tax deductions. It may also mean reducing spending or increasing income. Banks factoring in affordability @7% when giving a loan, if yoy cant afford 7% you probably shouldn't have a loan. There is no universal law that says because something cost X the return will be y.
     
  4. Biz

    Biz Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,517
    Location:
    Investard county
    Once again, no. It's from experience.

    When rates rise past the what is considered normal (around 7%) more people get out of property investing, less stock, less development, rents rise. Of course rents can rise as rates fall too due to lack of stock for a number of reasons but once we start going past the long term average of rates then rents generally rise along with it.
     
    Tranquilo likes this.
  5. Chilliblue

    Chilliblue Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,605
    Location:
    Australia
    But 70% are at or well over what the banks currently require to mitigate that risk.

    That is not a bad statistic when there are sections of the public portray all property investors as mortgaged to the hilt and an increase of even 1% can make the whole thing crash.
     
  6. srirang

    srirang Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    128
    Location:
    Melbourne
    We can do about 13% till things start getting harder. But rents should increase in that situation to offset some of the pain and negative gearing should help as well. We are about neutral at this stage with funds sitting in offset on PPoR.

    Also, we fix all the investments every 2 years or so to give us the sleep-at-night factor.

    If I were the OP, I'd be fixing at least part of the debt for 2 years.
     
  7. KDP

    KDP Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    475
    Location:
    Melbourne
    Currently if same rent level we can go up to 10% but that would mean all income diverted to serving debt rather than acquiring new investments.

    I'd expect rent to also go up if interest rate does.
     
  8. willair

    willair Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    6,776
    Location:
    ....UKI nth nsw ....
    There was a post in the other site several years ago,about "IF" the rates went above the magic 8% how would different people cope in different ways and the explosive consequences for some,i try to find that post to have a look at it again but can't, find it,but at the time 8% with a trending down real estate market with the tail winds of the "GFCmach one" the short term outlook was grim to say the least../..
    But you look at the numbers 30% are bulletproof ,7% are all ready on the bbq plate inbetween 7% is when the #### hit the high speed fan,and with all the investment education out there sometimes it's better to look back ,or we see a generation of investors that never see a interest rate rise for the next few years..imho..
     

We provide our clients with the opportunity to select their own investments from a wide range of ASX listed securities. We provide the research to ensure your selections will achieve the goals. This is the value of advice.