How Interest Rates Impact Your Investments

For high-net-worth investors, having a strong understanding of how interest rates impact your investments is critical, as the two concepts are intrinsically linked. By knowing the effects of high interest rates and what causes them, you will be better prepared to make the right investments to secure your future and strengthen your portfolio.

As interest rates continue to rise across Australia, many investors wonder how factors such as inflation, unemployment rates and mortgage delinquency rates impact their investments. The reality is that all of these factors are connected, and that knowing more about them will help you understand the effects of rising interest rates, as well as how they impact your investments.

Factors Impacting Interest Rates

Inflation

When it comes to discussions around interest rates, inflation is always at the core of the topic. Since 2020, inflation has risen drastically due to global factors such as the COVID-19 pandemic and the war in Ukraine, driving up prices and resulting in an increase to the consumer price index. Inflation and interest rates are closely connected; when inflation rises, interest rates rise in an attempt to bring inflation back down. 

In September 2022, the consumer price index had risen by 7.3% over the last twelve months. While this figure was expected to increase to as much as 8% by the end of 2022, it has instead decreased to 6.9%. Generally, when there is an inflation decrease, a drop in interest rates will follow.

Unemployment Rate

Another factor that impacts interest rates, inflation and, ultimately, investments is the rate of unemployment, which reached 3.4% in October 2022 – a record low for Australia.

As it becomes difficult for businesses to fill positions in an environment of low unemployment, wages tend to increase and the population has more money to spend. This results in lenders increasing interest rates, which will have an impact on your investments. 

Mortgage Delinquency Rates

Mortgage delinquency rates are also closely tied to interest rates, with many people taking advantage of lower interest rates when they are available. As inflation increases, unemployment decreases and interest rates rise, delinquency also increases as home owners struggle to meet the demands of higher rates on their mortgage. 

This increased risk of delinquency – even default – is another factor lenders will consider when there is a period of increased interest rates, making loans for property harder to come by.

Interest Rates and Private Mortgage Investments

The impact of rising interest rates on your investments will often depend on the exact type of investments included in your portfolio. Particularly in the property market, some investments will be more vulnerable to changing interest rates than others.

Having a balanced portfolio with a diverse range of investments is the best way to maintain your wealth and minimise the impact of interest rates rising. Private mortgage investments are generally seen as one of the safer investments in the property market, although its effectiveness depends on the investment model used by the mortgage lender.

With a sustainable model, private mortgage debt can be one of the best balancing investments for rising interest rates, providing you with a fixed income that is less likely to be impacted by inevitable changes in the market. By investing in private mortgages, you can build a strong foundation for your portfolio and benefit from the stability of regular income despite the impact of interest rates on house prices.

Strengthen Your Portfolio With Private Mortgage

Inflation, unemployment rates and delinquency rates are all important factors that influence interest rates, which in turn impact your investments. Arthurmac’s private mortgage investment strategy has consistently provided investors with a stable income that remains strong even throughout significant market challenges, such as the Global Financial Crisis and the COVID-19 pandemic.

If you are looking to strengthen your portfolio, particularly during times of higher interest rates, Arthurmac is here to help. To learn more about private mortgage investments or to speak to an expert, give our team a call on 1300 417 690 or fill out our contact form to hear from us soon.