07 Jul 2021

Do Interest Rates Go Up in a Recession?

Contrary to what you may believe, interest rates do not go up in a recession. In fact, most of the time, they decrease. 

Why do Interest Rates Decrease During a Recession?

The Reserve Bank of Australia is the entity in charge of setting interest rates. They use interest rates to stimulate the economy or slow it down depending on several factors. When the economy isn’t growing as fast, for example, during a recession, they want to encourage people to borrow to boost economic activity. The most effective way to increase borrowing is by lowering interest rates. 

Is Buying a House During a Recession Recommended? 

Due to low interest rates, mortgage brokers and financial experts recommend buying homes during a recession. Property prices also fall during recessions, making it more affordable to buy a property. Lower prices also mean it’s easier to save enough money for a 20% deposit, eliminating the need to pay Lenders mortgage insurance. Buy your home for less money during a recession. You can make a more significant profit after selling it after the property value rises. 


Downfalls of Buying During a Recession

One of the biggest downfalls of buying during a recession is that you may become unable to repay your mortgage. Recessions slow the economy, resulting in job losses and salary cuts. A mortgage that once seemed affordable may not be impossible to repay. 


If you are interested in buying a home during a recession because of lower interest rates and lower property costs, contact the brokers at Mortgage House. We can help you determine how large of a mortgage you can actually afford to repay.

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