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It’s interest(ing) at any rate

 

So, it’s early 2020 and everyone is talking about this virus in China and how they managed to build a fully operational hospital in a matter of days. But no one is really worried that much about it in Australia. I even remember talking to friends and family and saying things like “it will all be over in a month or two”. Well, March came round, and, on the 20th, the whole country and world went into lockdown. 

At this time the RBA (Reserve Bank Australia) and retail banks took drastic measures to help Australians. The cash rate was cut from 0.75% on the 3rd of March 2020 to 0.50%, then again on the 19th of March to 0.25%. This was the first out of cycle meeting and change in decades. Then came one last rate cut on the 3rd of November 2020, to the lowest ever in Australian History, 0.10%. 

Then there were nonstop lockdowns and boarder restrictions. Later in 2020 the great migration or FOMO of living in Queensland started. People just wanted to buy and move up from New South Wales and Victoria. I wonder if Victorians will like XXXX over VB? I’ll ponder on that later. 

That’s when the housing market took off like a rocket. It was a sellers dream market; people desperately wanted that bigger place with a home office and yard. I get it, I too would much rather isolate or lockdown in a house over an apartment. 

Rates were low, people could borrow more, and they did! 

Fast forward to now (November 2022). I have to say the last two years feel like a blur. But now we’re coming out the other side and it feels like we have gone ‘Out of the frying pan and into the fire.’ There have been supply line issues, staff shortages, and the cost of materials keeps going up. With all the spending and government stimulus, Australia is now facing inflation growth and the RBA has reacted by starting to increase interest rates. 

The first rate increased was on the 3rd of May 2022 by 0.25%, increasing then cash rate to 0.35%. Seven months later the rate is now 2.85% (9/11/22 at time of publishing this article) with the average variable mortgage rate being ~ 5.20%. 

The market has reacted to these increases, with people being more conscious about their purchases and thinking long term around their finances and the cost vs value. Sadly, some are already finding the rate increases to much. Queensland saw the biggest rise in the number of properties selling under distressed conditions jumping from 2203 in (May 2022) to 2791 in October, an increase of 26% or 588 homes. 

Here is an example of how much monthly repayments could increase by with future rate increases. All examples are based on a 25-year loan term with a starting rate of 5.20%

So, I thought it might be good to share some tips to help you prepare for future rate increases.

  • Review your home loan rate and repayment options. Fortnightly vs Monthly.
  • Contact your bank sooner rather than later. See if you can renegotiate your rate.
  • If you can, set up an offset account.
  • Check your expenses (Do you need all the streaming services)
  • Get ahead and commit to extra repayments now. If you can.
  • Refinance your loan.

I hope these help.

Jared Campbell

 

Data, rates, and calculations have been obtained from the following websites – RBA, SQM Research analysis and Finder.com.au.
This article is intended to provide general information only. It does not take your personal financial situation or needs in to account and must not be relied upon as financial advice. As this information has been prepared without taking your objectives, financial situation or needs into account. You should, before acting on this, consider the appropriateness to your circumstances.