Got an eagle eye on house prices? Rate rises are only part of the story

Rate rises can affect the property market, as we’ve all seen of late. But there are other factors that appear to hold longer-term sway over national house prices.

In a bid to bust inflation, the Reserve Bank of Australia (RBA) has been on a rate rise run that’s seen the official cash rate go from a record-low of 0.10% to 3.60% in just 10 short months.

Along the way, we’ve seen property prices across Australia decline.

As rates rose, Australia saw the largest and swiftest property price drop on record, with a 9.1% fall from April 2022 through to February 2023.

But a recent study by Domain, which examined 30 years of data, suggests that population and migration growth have greater and more long-lasting effects on property prices.

The study shows that a 1% mortgage rate increase may result in Australian house prices falling by 1.34%, on average.

But in comparison, national house prices could jump by 8.18% with a population increase of only 1%.

So let’s examine the effects of mortgage rate rises and population growth so you can navigate the market.

Mortgage rate rise effects

When interest rates rise, your borrowing power can dip. And the rise in the cost of living can hit the hip pocket.

So, under these conditions, fewer people may be willing to buy property.

With less demand, vendors may need to lower prices in order to sell homes. And if you’re ready to buy you may be able to negotiate a great price.

But the RBA can’t keep raising the cash rate forever (surely!).

In fact, economists at each of the big 4 banks have forecast that the RBA will announce just one or two more rate rises by 2 May 2023, with a peak cash rate of 4.10% predicted.

Corelogic stated in their recent three-year post-pandemic market report that once we get a rate hike reprieve, property sale and price volatility may lessen.

Population and migration effects

While mortgage rate rises do affect property prices, other factors appear to have more long-term effects.

Doman’s findings outlined that property prices are reactive to rate rises within the same quarter, whereas movement in population and migration numbers is cumulative and the effects are longer lasting.

So as migration numbers continue to rebound following COVID-19 lockdowns (and lockouts), it’s likely we’ll see an increase in property demand, which could cause prices to rise.

For example, Domain says Melbourne has “made a quick population recovery” since the COVID-19 lockdowns and is slated to nab the title of Australia’s most populated city by 2031-2032.

Melbourne had an 8.1% property price drop in 2022, while Sydney experienced a heftier reduction of 12.1%.

Domain’s study suggests that Melbourne’s population boom, and the resulting increase in housing demand, are behind the more moderate price drop.

And so, while it’s worth considering mortgage rates when surveying the property market, other factors like population and migration – which feed directly into supply and demand – are certainly worth considering too.

If you’d like to dig into the modelling further, the Australian government’s Centre for Population website has a great interactive tool that you can use to check out migration forecasts for each state and territory.

Get in touch with us today

Keeping an eagle eye on property prices is a great idea if you’ve got home ownership in your sights.

And while you’re busy researching the market, we can get cracking on helping to find the right loan for you.

We can also help you get financially savvy with tips to boost your borrowing power. That way you’ll be ready to pounce when the time is right.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Homeowners feel the pinch as RBA lifts cash rate to 3.60%

The Reserve Bank of Australia (RBA) has increased the official cash rate for a tenth straight meeting, taking it to 3.60%. How much will this rate hike increase your monthly mortgage repayments, and how many more rate rises are expected to come?

The RBA’s latest move takes the cash rate to its highest level since May 2012.

However, in somewhat hopeful news for mortgage holders, RBA Governor Philip Lowe has softened his language around the timing of future rate hikes.

While last month he said “further increases in interest rates will be needed over the months ahead”, no such statement was included in this month’s rate hike announcement.

In assessing when and how much further interest rates need to increase, Governor Lowe said the RBA board will be “paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market”.

“The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that,” he added.

How much could this increase your mortgage repayments?

Unless you’re on a fixed-rate mortgage, the banks will likely follow the RBA’s lead and increase the interest rate on your variable home loan very shortly.

Let’s say you’re an owner-occupier with a 25-year loan of $500,000 paying principal and interest.

This month’s 25 basis point increase means your monthly repayments could increase by almost $75 a month. That’s an extra $985 a month on your mortgage compared to 1 May 2022.

If you have a $750,000 loan, repayments will likely increase by about $112 a month, up $1478 from 1 May 2022.

Meanwhile, a $1 million loan will increase by about $150 a month, up about $1,980 from 1 May 2022.

What happens if the cash rate increases further?

The big four banks are forecasting that the cash rate will peak at either 3.85% (CBA’s prediction) or 4.10% (NAB, Westpac and ANZ).

Assuming you’re an owner-occupier with a 25-year loan, here’s how much more you could be paying each month if the cash rate reaches 4.10%:

– $500,000 loan: approximately $75 extra per rate rise = up $1135 from 1 May 2022, to a total of $3,470 per month.

– $750,000 loan: approximately $112 extra per rate rise = up $1702 from 1 May 2022, to a total of $5,200 per month.

– $1 million loan: approximately $150 extra per rate rise = up $2280 from 1 May 2022, to a total of $6,950 per month.

Worried about your mortgage? Get in touch

There’s no denying that a lot of households around the country are feeling the pain of these rate rises.

There are also lots of people on fixed-rate home loans wondering just what options will be available to them once their fixed-rate period ends.

Some options we can help you explore include refinancing (which could include increasing the length of your loan and decreasing monthly repayments), debt consolidation, or building up a bit of a buffer in an offset account ahead of more rate hikes.

So if you’re worried about how you might meet your repayments going forward, give us a call today. The earlier we sit down with you and help you make a plan, the better we can help you manage any further rate hikes.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

The latest twist in the tale of national property prices: explained

The property market has had more plot twists than a daytime soap opera in recent years. So getting the skinny on current trends is helpful when you’re planning to buy. Here’s the lowdown on the latest surprising bit of data.

Despite all the media doom and gloom predicting that the Australian housing market would tank in 2023, national property prices actually rose ever-so-slightly in February.

So what the heck is going on?

Property price trends

You may have heard it’s been a bit of a buyer’s market in recent times. Over the past 12 months, property prices were down 7.2%, the biggest annual drop since May 2019.

With rising interest rates, buyer demand slowed. This saw properties sitting on the market for longer.

And to entice sales, vendor discounting rose to -4.3% in January 2023 from -2.9% in November 2021.

However, recent data shows things may be starting to turn.

A PropTrack analysis shows that Australian property prices actually rose by 0.18% in February 2023.

And here’s why …

Impact of housing supply

If you’ve been house hunting recently you may have noticed it is slim pickings. In fact, as of December 2022, new listings were 20.4% lower year-on-year.

Lower listing volumes for most states has created increased buyer competition, which has helped drive prices up slightly.

Now, this may just be a blip – listing volumes can experience seasonal fluctuations and if supply increases again prices may drop back down.

But it just goes to show how hard the market is to predict. And those who are holding out on buying until the market drops further might want to start preparing their finances sooner rather than later.

Impact of interest rates

Why were national property prices expected to drop in 2023? And why might they still fall?

Well, successive rate rises have seen the RBA’s official cash rate hit 3.35%, up from 0.10% in May 2022.

And in a recent statement, RBA governor, Philip Lowe announced the Board expects more rate hikes for 2023.

As interest rates rise, so too do mortgage repayments, which means buyers are unable to borrow as much – leading to downward pressure on property prices.

But as we’ve seen in February, other factors – such as the number of homes available to buy – can counteract that downward pressure.

Have a chat with us

Keeping your finger on the pulse of the property market is tough enough – let alone finding the right home loan, organising your finances and navigating the application process … buying a home can feel like a full-time job in itself!

But we’re here to help. We can use our network of lenders to find the right home loan for you, so you can focus on nabbing your new home.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Take the heat off rate hike fears with these 4 tips for buyers

Have recent rate hikes made you nervous about taking the plunge into the property market? You’re not alone; it’s a buyer’s market for a reason. Here’s how to stay cool and calm when buying your next property. 

As you’ve probably seen in the news, the Reserve Bank of Australia (RBA) has increased the official cash rate from 0.10% to 3.35% in just nine months.

It’s now the highest it’s been since September 2012 – so it’s only natural to feel a bit hesitant about buying property right now.

But rest assured with the right buying strategies in place, you can navigate rate hikes and mitigate potential financial stress.

1. Know your borrowing capacity

Get to know your borrowing capacity, and consider leaving yourself a bit of a buffer by purchasing under the maximum amount.

That’s because over the many years it takes to pay off a home loan, your financial or personal circumstances may change, and interest rates could rise further.

Buying a bit under your capacity allows you to create a financial buffer to adjust and adapt to any unforeseen changes.

We can help you calculate your borrowing capacity before you start house hunting – so you don’t fall in love with a place that could create more financial stress than it’s worth.

2. Take advantage of it being a buyer’s market

With rising interest rates and inflation, there’s been a softening of the market and this may reward those who are ready to buy now.

According to CoreLogic, “it’s a buyer’s market”!

In the three months to December, the median time a property spent on the market increased to 31 days across the capital cities and 41 days in regional Australia.

That’s a big increase from a median of 20 days in November 2021.

“Buyers are no longer facing a sense of urgency to make a purchase decision and they can negotiate on price more aggressively,” explains CoreLogic’s executive research director Tim Lawless.

“If they don’t secure a price they think reflects good value, they can simply move on to the next property amid persistently declining prices.”

And by targeting properties that have been on the market for a while, you could potentially have more bargaining power (just be sure to do your due diligence!).

3. Take advantage of government schemes

There are various government schemes that may help reduce the size of your new mortgage and other associated costs.

For instance, the federal government offers low deposit, no lenders mortgage insurance (LMI) schemes through the NHFIC.

The schemes can save eligible first home buyers thousands of dollars and speed up home ownership by 4 to 4.5 years on average.

Meanwhile, all state and territory governments (except the ACT) offer first-home buyer grants, while most (except South Australia) offer concessions to take the stamp duty sting out of house buying.

On average, stamp duty can tack an extra 3-4% onto your property value, depending on the state, so keeping this hefty sum in your pocket is a good deal.

We have all the low-down on government schemes and can help you navigate eligibility criteria. We can also explore the possibility of bundling the schemes together for more savings.

4. Let us help guide you

That super low-interest rate loan you saw on a Facebook ad might have looked like an absolute steal, but did you notice the eye-watering fees in the fine print?

And did you know that shopping around for a home loan by sending in multiple loan applications can negatively impact your credit rating?

Speaking to a mortgage professional like us can help you avoid these common pitfalls, and others.

We can help you find the right lender, home loan rate and terms that’ll suit your individual needs.

Better still, we can help you organise your finances for your application and navigate all the red tape.

So if you’ve been a bit nervy about purchasing in this current financial climate, give us a call today. We love nothing more than helping people navigate the complexities of the finance and property markets.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

How to prepare for a fixed-rate mortgage cliff

Do you have a fixed-rate mortgage contract that’s coming to an end soon? It can be a stressful time, particularly with rate rise news dominating the headlines. So today we’ve got some tips for a smooth transition.

Like many Australians, you may have taken advantage of the interest rate good times by locking in a cracking rate.

But as they say, all good things must come to an end.

Indeed, the Reserve Bank of Australia (RBA) has estimated that 800,000 fixed-rate loans will end this year.

If that includes your loan, below are some tips to help you navigate the transition to higher repayments smoothly.

Crunch the numbers

Variable interest rates have been rising in recent months. And you can expect your mortgage repayments to follow suit once your fixed-rate loan contract ends.

Do you know how much extra you may have to pay each month? And where will you find the extra cash?

Giving your budget a tidy-up now may put you in a better position to decide what loan product will suit you going forward to help you meet your repayments.

Consider cutting back on non-essentials (streaming services, takeaway coffees, alcohol, restaurants) and look for cheaper offers on your big-ticket bills like insurance and utilities.

Doing so now can also help you save up a buffer that’ll ease your transition to future higher loan repayments.

Negotiate your rate

One of the worst things you can do when rolling off a fixed-rate loan is to simply accept the variable rate your lender automatically provides.

Lenders are more likely to offer attractive rates to new customers, not their existing ones. It’s often referred to as the “loyalty tax”.

Before your fixed-rate contract ends, we can talk to your lender and let them know you’re exploring your options.

In order to keep you on board they may very well make an offer you find acceptable.

Do you want to refix?

Continued rate rises are expected in 2023 and, depending on your situation, you may wish to refix your loan.

You could also consider a split loan – where part of your loan has a variable rate, and the other part is fixed.

That said, not all lenders allow you to refix all or part of your loan.

If you want a fixed or split loan and your current lender won’t provide it, then you may want to explore your options elsewhere by refinancing.

This brings us to our next point.

Time to refinance?

If your existing lender doesn’t come up with the goods then refinancing is an option.

Refinancing may get you access to rates and features that banks use to woo new customers. And it can potentially save you thousands.

According to 2022 PEXA data, refinancers saved on average $1,524 per year. The ACCC reported in 2020 that mortgagors with 3 to 5-year-old loans paid an average 58 basis points more in interest than new lenders.

If you’re considering refinancing, you may want to act sooner rather than later. With house prices falling, it’s important to make sure you have enough equity in your home to refinance.

Talk to us

Last but not least, come and chat with us well before your fixed rate ends – not after.

We can help you crunch the numbers, negotiate a new rate, and help with refixing and/or refinancing.

Acting early means we’ll have plenty of time to explore plenty of different options for you and help you find a solution that will allow for a smooth transition.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.