Interest rate rises: are you a surprise winner or loser?

Interest rates are forecast to rise again in June, and many people don’t realise there are unexpected benefits. Will you win too?

Twelve years is a long time between drinks, and interest rate rises.

Many Aussie borrowers have never experienced the impact of Reserve Bank interest rate increases, which started this month for the first time since 2010 and are tipped to continue rising sharply in the year ahead.

Meanwhile, savers have become so used to puny returns on their bank deposits that they have stopped complaining.

While mortgage borrowers and savers are generally the most affected by rate rises, there are other unexpected winners and losers when the RBA makes its moves.

Do you fit in one of these categories to make you a surprise winner?

FIXED-RATE BORROWERS

Big banks begin lifting their variable rates from Friday, May 13, but almost half the population have switched to fixed loans in recent years.

Savvy borrowers could have taken out a fixed-rate mortgage in August 2021 for 2.2 per cent, and considering the RBA has warned the cash rate could rise to 2.5 per cent next year – which would translate to variable rates around 5 per cent – these people are laughing all the way to the bank.

The Reserve Bank is likely to lift its official interest rate again in less than three weeks.

LOW-DEBT BUSINESSES AND INVESTORS

Rising rates occur because of rising inflation and a stronger economy, so the fittest will not only survive, but thrive.

Businesses will benefit from rising demand and prices, while investors with low borrowings should see asset prices rise while their debt stays the same or shrinks.

PENSIONERS

Seniors who rely on cash in the bank have been extremely patient as deposit rates plummeted in the past decade, but things are finally improving.

The Commonwealth Bank has unveiled an 18-month term deposit rate almost 2 per cent higher than its other term deposit offerings, and we can expect others to follow.

Many pensioners will benefit from the government freezing deeming rates – which affect the income test for pensions – at their current low levels for two years.

CENTRELINK CLIENTS

It’s not just age pensioners who are winners. Anyone receiving a Centrelink benefit should see a larger payment increase because it’s linked to inflation, and the reason rates are rising is because inflation is sharply higher too.

FIRST HOME BUYERS

Why, you ask, would new borrowers want higher interest rates?

The answer is that rate rises are forecast to lower house prices by 15 per cent within two years as demand weakens.

These could deliver some bargain opportunities for first home buyers, who also benefit from a growing range of government incentives helping them get their foot in the door.

However, where there are winners, there are also losers.

Conservative investors who choose defensive super or investment options are often heavily invested in bonds, which have already fallen sharply – because their values shrink when rates rise – and are likely to continue doing this until rates flatten out at higher levels.

Some term deposit savers will also suffer if they signed up in recent months at a low rate, and are stuck in that for the duration of their deposit.

And businesses that borrow big but deliver small or no profits will come under increasing pressure, as will the investors who buy into those businesses.

Anyone who bought property in the boom of the 18 months may see themselves as losers if prices fall 15 per cent as predicted, but history has shown that real estate values eventually bounce back to fresh highs.