If interest rates rise, the affordability of property goes down. How big is the impact?

If interest rates rise, the affordability of property goes down. How big is the impact?

Bank Negara Malaysia says it wants to be accommodative to economic growth as one of the reason it maintained the OPR. I think this is a healthy rate. I just hope the Federal Reserve of the US will reduce their rates and continue to do so a few more times until the differential with our OPR is very close. Currently, still some distance away. This news was yesterday:

BNM maintained the OPR rate. (I don’t have to have a higher repayment every month!)

Article in reuters.com. Bank Negara Malaysia (BNM) will leave its key interest rate unchanged on Thursday and keep it there at least through 2025 as growth remains robust and inflation stays under control, according to a Reuters poll of economists.

While BNM has managed to keep inflation in check, currently at 2.0%, the Malaysian ringgit has flipped from being one of the worst performing Asian currencies to one of the strongest in recent weeks.

That suggests the central bank will be in no rush to cut rates anytime soon, aiming to avoid weakening the currency and importing inflation.

All 30 economists in the Aug. 27-Sept. 2 Reuters poll predicted BNM would leave its overnight policy rate at 3.00% on Sept. 5. A median from a smaller sample showed rates would remain at the current level until at least 2026, a view unchanged since the beginning of the year. Article in reuters.com.

Lower Interest Rate will support the property market too

Imagine paying double of what you pay today… or even just an extra 50 percent? RM2,000 monthly mortgage today is sufficient for a RM485,314 property. This could be a smaller sized condo in a mature area or a bigger condo in a less popular area or even a double-storey landed in a non-gated development in Rawang. Still pretty okay. However… what happens if our OPR moves up by 1.5%? Take a look at below. With the same RM2,000 I do pity the property which the person could buy versus if rates were lower.

We can see the property which the same person paying RM2,000 per month has dropped to just over RM400,000. This is a drop of nearly RM85,000… This is why when rates are low, it is always accommodating to property investment versus the times when the rates are very high.

Happy deciding. Maybe your perfect home has not yet arrived, so you are still waiting.

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