Do you think property prices will fall when interest rates rise Don’t put your money on it.

Is it possible that you've pondered if the property market will plummet as interest rates rise, regardless of whether you're buying, selling, or holding? We'll take a look at what happened to property prices in the past when interest rates were raised.

We’ve all heard it before: past performance does not guarantee future outcomes.

However, it is also believed that knowing the past can help us prepare for the future.

Because there has been much speculation about the Reserve Bank of Australia (RBA) raising the cash rate in the next 18 months (or so) and fixed rates already rising as a result, it’s vital to look at what has happened to property values in the past when interest rates have increased.

What can we learn from the past?

According to a study conducted by the Property Investment Professionals of Australia (PIPA), interest rates do not cause property markets to flourish or crash, but rather affordability, local economic conditions, consumer attitude, or availability to credit do.

During the six periods of rising cash rates since 1994, the PIPA analysis focuses at national house price changes, which we’ve summarized below:

June 1994 to December 1994: Cash rate increase: 2.75%. House price increase: 1.1%.

September 1999 to September 2000: Cash rate increase: 1.50%. House price increase: 7.5%.

March 2002 to December 2003: Cash rate increase: 1.00%. House price increase: 35.7%.

March 2006 to December 2006: Cash rate increase: 0.75%. House price increase: 8.4%.

June 2007 to March 2008: Cash rate increase: 1.00%. House price increase: 8.9%.

September 2009 to December 2010: Cash rate increase: 1.75%. House price increase: 10.5%.

So, what can we deduce from those numbers then?

For starters, if you’re waiting for a cash rate increase in the hopes of buying during a price drop, you’re going to be disappointed because house prices have never fallen throughout the aforementioned times.

The strength or weakness of property markets, according to PIPA Chairman Peter Koulizos, is typically influenced by more than just cash rate changes.

When the cash rate was already at a previous record low of 0.75 percent before the pandemic, “there has been much speculation over the last 18 months that record-low interest rates are the singular reason why property prices have skyrocketed,” Mr Koulizos pointed out.

A variety of factors are definitely at play, including some buyer mania, but one of the key reasons for our rising market circumstances is better access to financing, which was simply not the case two years ago when rates were also low, I’m afraid to say.

RBA and PIPA both believe that most borrowers can afford a rate increase.

When the cash rate rises, the RBA does not appear to be concerned about borrowers being able to afford their mortgages.

In a recent speech to a parliamentary committee, RBA assistant governor (economics) Luci Ellis said that, particularly during COVID, the majority of borrowers were paying off more of their home loans than their contracts required them to.

This time, people have been putting money away in offset and redraw accounts to save for the future. Especially during lockdowns, some folks were not spending as much as they would normally,” Dr. Ellis explained.

Because many people are currently paying more than they should, if and when interest rates do rise, they won’t need to increase their actual repayments.”

As a result, Mr Koulizos concurs: “While we don’t expect rates to rise in the next year or two – and when they do, they are unlikely to rise quickly – the monthly mortgage repayments on a $574,000 loan would increase by about $73 per week if the interest rate were to rise by one percentage point.”

If you'd like to learn more, please contact us.

What is the story’s moral? You don’t have to wait for a change in the cash rate to make your next move.

Get in touch with us today if you’re wanting to make your first purchase in the property market, and we’ll walk you through a number of government programs that can help you get started.

You can also talk to us about your current mortgage (or your next purchase) if you’re already a homeowner and are concerned about what an increase in the cash rate might mean for your current mortgage (or your next purchase). Some of the options include lowering your rate or depositing funds into an offset account ahead of time.

To learn more, contact Premium Finance Group Australia at (07) 4720 8888 or email us at


Disclaimer: The content of this article is general and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your situation and may not be relevant to circumstances. Before taking any action, consider your particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced, or republished without prior written consent.

Contact Us

Schedule your free 15-min call with an advisor

Let us know how we can help below.