Think property prices will dip when rates rise? Don’t bet the house on it

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Whether you’re looking to buy, sell or hold, there’s a good chance you’ve wondered whether the property market will tumble when interest rates rise, right? Today we’ll look at what happened to house prices when interest rates were hiked in the past.

Past performance does not predict future results – we’ve all heard that before.

But it’s also said that an understanding of history can help us prepare for the future.

So with all the recent talk of the Reserve Bank of Australia (RBA) increasing the cash rate in 18 months (or so), and fixed rates already going up as a result, now’s an important time to look at what has happened to property prices when interest rates rose in the past.

What does history show us?

History suggests that interest rates do not force property markets into booms or busts, rather it’s often affordability, local economic conditions, consumer sentiment, or access to lending that does, according to a Property Investment Professionals of Australia (PIPA) analysis.

The PIPA analysis looks at the six periods of increasing cash rate movements since 1994, and the corresponding national house price movements, which we’ve summarised below:

June 1994 to December 1994: Cash rate increase: 2.75%. House price increase: 1.1%.

September 1999 to September 2000: Cash rate increase: 1.50%. House price increase: 7.5%.

March 2002 to December 2003: Cash rate increase: 1.00%. House price increase: 35.7%.

March 2006 to December 2006: Cash rate increase: 0.75%. House price increase: 8.4%.

June 2007 to March 2008: Cash rate increase: 1.00%. House price increase: 8.9%.

September 2009 to December 2010: Cash rate increase: 1.75%. House price increase: 10.5%.

So what can we take from those figures?

Well, for starters, for those holding out for a cash rate rise in the hope of buying during a price dip, history is not on your side – not once did house prices fall during the above periods.

PIPA Chairman Peter Koulizos says the strength or weakness of property markets is often influenced by more than just cash rate adjustments.

“There has been much conjecture over the past 18 months that record-low interest rates are the singular reason why property prices have skyrocketed, when the cash rate was already at a former record low of 0.75% before the pandemic hit,” Mr Koulizos pointed out.

“There are clearly a number of factors at play, including some buyer hysteria I’m afraid to say, but one of the main reasons for our booming market conditions is easier access to credit, which was simply not the case two years ago when rates were also low.”

Most borrowers can also afford a rate rise: RBA and PIPA

The RBA doesn’t seem overly concerned about borrowers being able to afford their mortgages when the cash rate rises.

RBA assistant governor (economic) Luci Ellis recently told a parliamentary committee that the majority of borrowers were paying off more of their home loans than required by their contracts, particularly during COVID.

“People have been socking away money in offset accounts and redraw accounts during this period. And particularly where you had lockdowns, some people were not spending as much as they ordinarily would,” Dr Ellis explained.

“If and when rates do eventually rise, a lot of people will not actually need to raise their actual repayment, because they’re already paying more than they need to.”

It’s a sentiment shared by Mr Koulizos: “While we don’t expect rates to rise for a year or two yet – and when they do, they are unlikely to ramp up rapidly – the monthly mortgage repayments on an (average) $574,000 loan may increase by about $73 per week if the interest rate increased one percentage point.”

Get in touch if you’d like to know more

The moral of the story? You don’t have to sit around and wait for a cash rate increase to make your next move.

If you’re looking to crack the property market with your first purchase, get in touch today and we can run you through a number of government schemes that can help make it easier for you.

And if you’re already a homeowner and are concerned about what an increase in the cash rate might mean for your current mortgage (or next purchase), we’d be happy to run you through a number of options available, which could include fixing your rate, or putting extra funds into an offset account in advance.

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.

Open banking is ramping up, so how are lenders using your data?

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Open banking is here and it’s charging full steam ahead. So just how are lenders and fintechs using your shared data in this brave, new, data-fuelled world? A new report has shed some interesting insights.

With all that’s gone on over the past two years, one of the nation’s biggest banking overhauls in recent memory has slipped under the radar.

It’s called ‘open banking’, and it aims to allow you to easily and securely share your banking data with your bank’s competitors to make it more convenient for you to switch banks when you think you’ve found a better deal on a financial product.

For example, instead of spending hours and hours gathering documentation (such as bank statements, expenses, earnings and identification documents) to refinance your home loan, you could simply request that your current bank sends the info across for you.

But, like most things, it comes with a trade-off: you’ve got to share your banking data with the prospective lender, fintech or allied professional to make it happen.

So just how do they use your data?

Australian open banking provider Frollo has just published the second edition of its yearly industry report, The State of Open Banking 2021, which surveyed 131 professionals representing banks and lenders, fintechs, technology providers, and brokers across the country.

The report shows open banking data availability has accelerated dramatically.

In the first 10 months of 2021, 70 banks started sharing consumer data and 14 businesses became accredited data recipients – including three of the four big banks.

This is an increase from just five data holders and five data recipients in 2020.

And more financial institutions are getting ready to jump on board.

The industry survey shows 62% of respondents plan to use open banking data within the next 12 months, and 38% within the next 6 months.

So what are they using the open banking data for?

Well, the most popular uses can be grouped into three categories:

– Lending: income and expense verification is highly valued by 59% of survey respondents.

– Money management: multi-bank aggregation and personal finance management were highly valued by 50% of respondents.

– Verification: customer onboarding (49%), identity verification (38%), account verification (34%) and balance checks (30%) were all highly valued.

For open broking, get in touch

Now, it’s important to note that open banking isn’t the only way you can make life easier on yourself when it comes to switching up financial products.

That’s what we’re here for!

We’re an open book – always happy to check whether you can apply for a better deal on your home loan somewhere else.

And as you know, we pride ourselves on taking on the vast majority of the legwork, whether we’re harnessing the power of open banking or not.

So if you’d like to explore your options, get in touch today – we’d love to help you out!

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.

Wheels in motion: RBA paves the way for early cash rate rise

Mortgage holders are facing a sooner-than-expected cash rate rise after the Reserve Bank of Australia (RBA) revised its outlook due to the economy bouncing back strongly from the Delta outbreak. So just how soon can we expect a rate rise?

As widely predicted, the RBA on Tuesday kept the official cash rate at the record low level of 0.1% for the 12th consecutive month.

But it was the wording in the RBA’s monthly statement that really caught the attention of pundits.

For the first time in a very long time, the key phrase “will not be met before 2024” was not included when referring to scenarios that needed to occur to trigger an official cash rate rise.

And in a later webinar speech, RBA Governor Philip Lowe said it’s now “plausible that a lift in the cash rate could be appropriate in 2023”.

This isn’t completely unexpected

For months, economists from financial institutions around the country have called on the RBA to revise their targets, with some predicting the cash rate rise could happen as early as November 2022, including Commonwealth Bank and AMP.

That’s right – possibly less than a year away.

Now, we understand this will be a nervy period for some mortgage holders, especially the younger ones.

After all, more than one million homeowners have never experienced an official cash rate rise (the last rise was back in November 2010).

So rest assured we’ve got your back – we’re here for you if you have any questions or concerns about what rising interest rates could mean for your mortgage.

So why is the cash rate rise (possibly) being brought forward?

The RBA’s statement sums it all up pretty neatly, but here’s the CliffsNotes version: as vaccination rates increase and restrictions are eased, the Australian economy is expected to recover relatively quickly from the interruption caused by the Delta outbreak.

“The Delta outbreak caused hours worked in Australia to fall sharply, but a bounce-back is now underway,” explains the RBA.

Now, the RBA says it will not increase the cash rate until actual inflation is sustainably within the 2-to-3% target range.

However, inflation has already picked up to 2.1%.

The RBA insists it’s in no rush though, saying it expects any further pick-up in underlying inflation to be gradual.

“This will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently. This is likely to take some time,” the RBA statement says.

“The Board is prepared to be patient, with the central forecast being for underlying inflation to be no higher than 2.5% at the end of 2023 and for only a gradual increase in wages growth.”

What could a sooner than expected cash rate rise mean for you?

Well, the most obvious impact of a cash rate rise is that interest rates will go up, which means your home loan repayments might increase each month.

And that could have a flow-on effect for other parts of the economy, such as housing values, explains CoreLogic’s research director Tim Lawless.

“We are already seeing the rate of house price appreciation ease due to affordability pressures, rising stock levels and, as of November 1st, tighter credit conditions,” says Mr Lawless.

“Once interest rates start to lift, there is a strong chance that housing prices will head in the opposite direction soon after.”

So what can you do about it?

Well, that depends on your current financial situation.

If you’re a prospective first home buyer suffering from FOMO, or someone looking to upgrade over the next two years, don’t be disheartened by increasing property prices: now’s the time to start planning ahead.

Planning ahead involves understanding your borrowing capacity, your property goals, and your current expenditures – this can help you determine what changes you can make before you pull the trigger on a purchase.

On the other hand, if you’re a current mortgage holder, now could be a good time to reassess whether you should lock in a fixed interest rate.

Indeed, many lenders have recently increased the interest rates on their 2-, 3-, 4- and 5-year fixed-rate home loans to head off the cash rate rise, and this latest statement from the RBA could trigger more rate hikes.

So if you’ve been on the fence about fixing your rate, it’s definitely worth getting in touch with us sooner rather than later.

We can run you through a number of different options, including fixing your interest rate for two, three, four or five years, or just fixing a part of your mortgage (but not all of it).

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.

Netflix and too chill: house hunters cutting corners on inspections

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More than half of Australian house hunters spend the same amount of time inspecting a property as they do watching an episode on Netflix, according to new research.

We get it. You see a house you like and you immediately want to buy it, warts and all.

But take a breath, as FOMO can be costly – with a third of recent purchasers admitting to “buyers regret”.

Not doing your due diligence on a property can also have implications when applying for finance if the lender’s valuation doesn’t come in at what you expected.

And it turns out that a lot of house hunters are leaping before they look right now.

A recent survey of 1,000 property owners by lender ME revealed that 55% of house hunters spent less than 60 minutes checking out the property they eventually purchased, despite it being one of the biggest purchases of their lifetime.

That’s about the length of a standard 55 minute Netflix episode.

The impact of COVID-19

Turns out we haven’t just become better at bingeing during COVID-19.

COVID-19 has also reduced the time buyers have to check out properties.

But it’s not always the purchaser’s fault.

About two-thirds (65%) of recent buyers said “real estate restrictions impacted their ability to inspect and purchase their property”.

And surprisingly, almost half (45%) of buyers restricted by lockdowns admitted to doorknocking vendors to ask for an inspection on the sly, as well as looking at photos and/or videos of the property.

Hidden issues

The lack of inspection time led to around 61% of Australian home buyers discovering issues with their property after moving in.

Around 40% of this group said they missed picking up the issues because they “lacked the skill or experience in inspecting the property”, while 33% simply “fell in love with the property and overlooked them”, and 18% were “impatient and concerned by rising prices”.

Overall, the top post-purchase problems included construction quality (32%), paintwork (28%), gardens and fences (23%), fittings and chattels (21%) and neighbours (17%).

Among owners who identified issues:

– 34% experienced a degree of “buyers regret” following the purchase.
– 58% would have paid less for the property had they discovered the problems earlier.
– 84% spent money fixing, replacing or improving the issues identified, or have plans to do so.

The moral of the story? Emotions are always involved when purchasing a home, which can cloud your judgement.

“Give weight to any niggling hunches that give you cause for concern and get a professional property inspector to do the looking for you,” says ME General Manager John Powell.

“It is also important to know your borrowing capacity in advance so you can buy your home with full confidence knowing you’ve got solid financial backing.”

Get in touch to find out your borrowing capacity

As mentioned above, it’s important to know your borrowing capacity before you start house hunting so you don’t stretch yourself beyond your limits.

So if you’d like to find out what you can borrow – get in touch today. We’d be more than happy to sit down with you, take a breath, and help you work it all out.

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.

Are you relying on a personal credit card for business expenses?

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We’ve all been guilty of the odd credit card mix-up from time to time – it happens! But if you’re consistently relying on a personal credit card to pay your business expenses – like 4-in-10 SME owners – then it’s probably time to explore other funding options.

The past 18 months have been tough for a lot of businesses around the country – I’m sure you don’t need us to remind you of that.

As such, 2-in-3 businesses (66.1%) are trying new funding options to help them build their way out of the pandemic, according to a poll of 1255 small businesses by SME non-bank lender ScotPac.

That’s a rapid rise from the start of 2021 when only 46% were introducing new funding.

The top three reasons SMEs have for seeking new funding sources are to buy plant and equipment (57.5%), improve cash flow (40.6%) and pay down debt (34.3%).

But one worrying stat caught our attention

When asked what new types of funding they had introduced over the past year to keep their business moving, more than half the SMEs (55.4%) said they turned to owner funds, with 42.5% relying on personal credit cards.

You know the old saying “you shouldn’t mix business with pleasure”?

Well, this is one of those times.

It’s very likely there are much more suitable options available for your business that will help you separate your business and personal expenses, and make it easier for you to forecast your cash flow – to name just a couple of good reasons.

“We’d encourage business owners, particularly if they are relying on personal credit cards, to seek professional advice about more sustainable funding options,” says ScotPac CEO Jon Sutton.

Other common (and likely more appropriate) types of new funding that SMEs have turned to over the past year include asset and equipment finance (38%) and government stimulus funds (27.6%).

Demand for invoice finance as a new source of funding has also more than doubled since 2018 to 16.3% – not far behind the percentage of businesses taking out a new overdraft (20%).

Want to explore new funding solutions for your business?

The SME finance space is constantly evolving – and we make it our business to make sure we stay abreast of the new funding options and players that can help your business.

So if you’re in need of finance for your business, but don’t know where to start, get in touch today.

We’d love to run you through the growing number of funding options available for SMEs just like yours.

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.