Prospective property buyers are concerned about the possibility of another interest rate hike in the near future, which could dampen the enthusiasm of new investors. The fear stems from potential slower growth in property values, which might deter investors from entering the market. Additionally, experts warn that increased interest rates could strain landlords, as the gap between rental income and mortgage costs widens.

Property investors have recently shown strong interest in the housing market due to unexpected increases in house prices, rising rents, and the anticipation of imminent interest rate cuts. However, if rates rise further, it is likely that investor interest will diminish. Some investors may decide to postpone their purchases, seeing less urgency in the current market conditions.

The primary concern for investors revolves around the disparity between interest rates on mortgages, which average 6.53 percent for investors, and rental yields, which stand at 3.8 percent nationwide according to CoreLogic. This mismatch could exacerbate cash flow issues for investors, especially at a time when prospects for capital growth are less robust compared to a year ago.

Although rental yields are beginning to improve with rents rising faster than home values once again, they remain relatively low, particularly in cities like Sydney and Melbourne. Recent data from CoreLogic indicates that while monthly mortgage repayments have increased significantly since April 2022, rents have only seen a modest rise, and home values have shown minimal growth across major capital cities.

Investors, in particular, may hesitate due to fears of slower capital gains and widening gaps between rental income and mortgage costs. The recent resurgence of property investors, attracted by strong house price growth and rising rents, could wane if expected interest rate cuts fail to materialize. This uncertainty may lead some investors to delay purchasing decisions, perceiving less urgency in the current market climate.