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What does the cash rate increase mean?

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News of the Reserve Bank of Australia’s (RBA) decision to increase the official cash rate has left many homeowners feeling uncertain and worried. For some, it’s the first time they’ve experienced a cash rate rise.

If you’ve been left scratching your head wondering what this means for you and your wallet, I’m here to help. In this article, I’ll answer common questions about what the RBA’s decision means for you.

What was the RBA decision?

On May 3, the RBA raised the official cash rate by 25 basis points to 0.35%.

This is big news as the official cash rate has been at a record low of 0.1% since November 2020 and the last time the RBA increased interest rates was in November 2010.

Why did the RBA increase the cash rate and what does it mean?

The RBA generally increases interest rates when inflation reaches a certain point (the goal is to keep it between 2-3%). Inflation is the main measure of cost of living, or how much our money is worth, and it’s taken off in Australia.

The latest inflation data showed Australia had recorded the highest quarterly and annual increase in more than two decades.

By increasing the cash rate, it appears that the RBA is trying to slow down demand in the economy and discourage people from spending money. Bigger repayments can mean less money to splash around elsewhere.

What’s the impact on homeowners?

Once the RBA raises the cash rate, lenders often pass this on to borrowers via an increase in their variable interest rates. Some lenders have already begun passing on the rate increase in full.

Even a small increase in your variable interest rate could have an impact on your repayments.

As an example, say you’re a homeowner in Sydney who purchased a property at the median house price of $1,403,154 with a 20% deposit. Your monthly repayments might jump from $4,727 to $5,288 if the cash rate were to hit 1% (which is tipped to happen by the end of the year) and your interest rate increased from 2.99% to 3.89%. That’s an increase in repayments of $561 a month.

What happens to repayments across Australia with a cash rate at 1 per cent?

RegionMedian House PriceLoan amount (20% deposit)Monthly repayments at 2.99%Monthly Repayment at 3.89%Increase in paymentIncreased cost over 30 years
Sydney$1,403,154$1,122,253$4,727$5,288$561$202,178
Melbourne$999,037$799,231$3,365$3,765$400$143,949
Brisbane$856,731$685,385$2,886$3,229$343$123,444
Adelaide$658,446$526,757$2,218$2,482$264$94,874
Perth$568,108$454,486$1,914$2,141$227$81,858
Hobart$791,587$633,270$2,666$2,983$317$114,058
Darwin$569,647$455,718$1,919$2,147$228$82,079
Canberra$1,055,812$844,650$3,557$3,979$422$152,130
National$805,621$644,497$2,714$3,036$322$116,081
This table estimates the effect of a 0.9 percentage point interest rate rise on recent purchasers of a median priced house with a 20% deposit. House price data from CoreLogic 31/3/2022, rates via Canstar database.

 

Those on a fixed-rate loan will be temporarily shielded from the cash rate increase until their fixed rate period ends.

There could also be other flow-on effects for homeowners from the cash rate increase, including further downwards pressure on housing growth rates, which were already losing momentum.

Are further cash rate increases expected?

This appears likely. Reserve Bank governor Philip Lowe said the Board was committed to doing what was necessary to ensure that inflation in Australia returned to target over time.

“This will require a further lift in interest rates over the period ahead,” he said.

Lowe indicated it was not unreasonable for the cash rate to climb to 2.5%.

What do I do if I can’t make my repayments?

With interest rates likely to continue going up, it’s important not to be complacent. Now is the time to review your home loan to make sure it still meets your requirements.
We can review your home loan, explain whether your lender is passing on the cash rate increase and how this will impact your repayments.

If you think you may have difficulty meeting your repayments, here are some options to consider:

• request a lower interest rate
• temporarily switching to interest-only repayments
• fixing your interest rate may help you budget for repayments
• asking for fees and charges to be waived
• consolidate debts to make repayments more manageable.

We’re available to discuss these options, so please don’t hesitate to get in touch today.

What’s a fair price for a property?

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How do you know how much to pay for a property? As a buyer, it can be tricky.

Offer too much and you’ll end up paying more than market value. Offer too little and you risk missing out on your dream home or investment property.

So, how do you ensure you’re getting a good deal whilst remaining competitive against other buyers? Here are some tips.

Look for recent sales in the area

Start by looking at what’s been selling in your preferred neighbourhood. Focus on the immediate area surrounding a prospective property (say within a few kilometres), as values can differ greatly within the same suburb.

Historical price trends are great for background information, but for an accurate gauge of today’s prices, focus on sales within the last few months.

Look for similar properties

If you’re wanting to buy a three-bedroom home with two bathrooms, there’s no point looking at sales of one-bedroom units. To be relevant, comparable properties should be pretty similar to the one you’re sussing out.

Features to consider:

  • Dimensions – are the land area and dimensions similar?
  • Location – look for properties that are the same proximity to local amenities (like schools and transport lines) as the one you’re interested in
  • Interior – compare properties with the same number of bedrooms, dining rooms, bathrooms and living areas.
  • Exterior – outside features should be similar, for example, both should have a garage or the same number of parking spaces
  • Condition – compare properties that are in a similar condition to the one you are interested in.

Tune into the market

Property market conditions can change fast, so it’s important to keep abreast of what’s going on. A sale price from even a few months ago may no longer be relevant if conditions have changed.

One way to keep on top of local market conditions is to go to plenty of inspections and auctions. You might even like to befriend a few local real estate agents and ask them to keep you in the loop about upcoming opportunities.

It’s also a good idea to keep track of:

  • Clearance rates (the percentage of properties sold at auction – a good indicator of demand)
  • Days on market (how many days it takes for a property to sell)
  • Median price (the midway point of all properties sold at market price over a set period).

Don’t take the advertised price as gospel

Remember, the advertised price is a guide only. This price can also change during the marketing campaign, based on comparable sales, market conditions and if any offers are rejected by the vendor.

Don’t be afraid to check with the agent whether the advertised price has changed.

Want to hear the good news?

You don’t need to spend countless hours researching – we’re here to help.

We offer a range of free property market reports to help get you up to speed with everything from the estimated price range of a particular property to local suburb information.

Get in touch today to find out more.

What insurance do you need when buying a property?

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As we have seen with the recent east coast floods, unforeseen disasters can strike at any time. That’s why it’s so important to protect yourself and your family financially – with the right kind of insurance for when something unexpected happens.

Sure, insurance may not be all that flashy and many people downright begrudge having to pay for it. But it gives you something that’s invaluable: peace of mind that your financial plans are protected, no matter what.

Here are the types of insurance you should think about when buying a property.

Income protection

Say you get sick or have a bad accident and cannot work. Income protection is your financial safety net.

Income protection insurance pays part of your lost income for a set time if you’re unable to work due to partial or total disability, caused by sickness or injury. It takes the financial pressure off you while you get back on your feet and enables you to cover your mortgage repayments and other expenses.

It’s a good idea to check whether you have income protection insurance through your super fund, but if not, we can line you up with a reputable provider. Premiums for this type of insurance outside of super are usually tax deductable.

You may also like to consider trauma insurance, total and permanent disability insurance and life insurance to protect you and your family’s financial future.

Mortgage protection

Mortgage protection insurance covers the cost of your mortgage repayments if you die or become seriously ill. It should be noted that it is only meant to cover your mortgage repayments and not any other expenses for you or your family.

Mortgage protection insurance may be a wise choice if you already have some other kind of life insurance – say with your super plan.

Landlord insurance

If you own an investment property, be sure to look into landlord insurance. This type of insurance can cover you against the risks landlords often face. Examples include tenant damage, theft, vandalism, fire, storms and other natural disasters.

It may also protect you if the tenant stops paying rent, as well as against other legal liabilities.

As with any insurance choice, it’s important to read the Product Disclosure Statement (PDS) to check what exactly is covered.

Building & Contents

Building or home insurance protects against the cost of rebuilding or repairing your property from things that are outside your control, like fire or natural disasters. You can opt for total replacement cover (to rebuild your home as it was prior to the event), or sum-insured cover (coverage up to a certain amount).

When you buy a property, your mortgage broker will most likely recommend that you insure the property before settlement day. When choosing your policy, make sure you have the right amount of coverage, as well as the right type of insurance for your actual needs.

Contents insurance protects your belongings, including carpets, rugs and curtains, in events such as fires, storms or theft. Often it will be bundled together with home insurance.

How we can help

Planning a property purchase? Working with us takes the burden out of finding the right home loan for your needs and the right type of insurance.

We can access some of Australia’s most respected insurance providers and offer you a competitive price.

Let us do the hard yards for you. Get in touch today.

How to make a pre-auction offer

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With auction clearance rates soaring above 80% in many markets in recent weeks, the competition amongst buyers for properties is often fierce.

One tactic some buyers use is to make a pre-auction offer before the property goes under the hammer. The idea is that if you make your offer enticing enough, the vendor may ditch the auction altogether and sell to you.

The benefits of making a pre-auction offer include:

  • Avoiding the stress of bidding at auction
  • Potentially knocking out the competition
  • Sticking to your budget
  • Flexibility to negotiate the terms of the contract (unlike at auction, where the contract is unconditional and there’s no cooling-off period or other special conditions like ‘subject to building and pest’ or ‘subject to finance’).

So, how does making a pre-auction offer work?

The first step is to check with the vendor’s agent whether they are open to accepting pre-auction offers. If the answer is ‘yes’, you can put in a written offer prior to the auction. The negotiation process will be the same as buying by private sale.

If your intentions change, you can usually withdraw your pre-auction offer, so long as no contracts have been signed.

It’s a good idea to seek legal advice and check the rules that may affect your pre-auction offer. For example, in Victoria, if your offer is accepted less than three clear business days before the auction date, you do not get a cooling-off period (time to change your mind).

How to make an effective pre-auction offer

Do your research

Research is key to paying the right price for a property. The listing agent may have provided an estimate of the sale price likely achievable at auction, but you’ll want to do some more digging to understand the property’s market value before you make a pre-auction offer.

Check out recent comparable sales of similar properties in the area to get an idea of how much the property is worth. We can line you up with free property reports to make this task easier.

It may also be worthwhile attending a few inspections and auctions to get a feel for how many other buyers are in the market in the area and what properties are selling for.

The goal is to make a competitive offer that’s too good for the vendor to refuse, without overpaying.

Discover the vendor’s motivation

Ask the real estate agent why the vendor is selling and use the information to your advantage. For example, if they have already put down their deposit on their next property, the vendor may need to settle fast.

This intel could prove useful during negotiations.

Be prepared

If your offer is accepted, you’ll want to have your finance in order.

Make sure your deposit is ready and your home loan is pre-approved. That way, you’ll have a clear understanding of your upper spending limit. Having pre-approval in place also gives you an edge over the competition because the vendor knows the deal is likely to go smoothly.

You may need to be ready to exchange contracts quickly, so be sure to have your conveyancer or solicitor on standby.

Don’t show your hand

Be mindful about giving away too much information to the vendor’s agent. After all, they’re working for the seller, not you.

Never reveal your budget, and always imply you’re interested in several other properties. If they think you’re too keen on the property they’re selling, they may be less flexible during negotiations.

Time your offer well

Timing is crucial when you make an offer. Some experts suggest that you go in hard and early, as vendors may be more inclined to accept your offer because of the convenience factor. This may also be a good tactic in a softening market.

Others recommend waiting until right before the deadline to make the offer in case the real estate agent plans to shop your offer around to other prospective buyers.

Another tactic is to stipulate a time limit – for example, tell them the offer is only on the table for 48 hours.

Ready to jump in?

Of course, there can be potential disadvantages with making a pre-auction offer. You might end up going in with an offer that’s too high or you might end up laying all your cards on the table and having the seller go to auction anyway.

At the end of the day, making a winning pre-auction offer comes down to being well-informed and using strategic negotiation tactics.

We can help you prepare with local market insights and detailed property reports. Get in touch to find out more.

Property Market Update – April 2022

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Many aspiring homeowners are focussing on securing a property during the busy Autumn-buying season.

If you’ve been struggling to break into the property market, it’s worth looking into the  government’s proposed $8.6 million expansion of the Home Guarantee Scheme, which if elected, aims to get people into the housing market sooner.

As announced in the federal budget by the Liberal Government, here’s what’s on offer:

  • Under the First Home Guarantee, from July 1, 2022, eligible first homebuyers can purchase a new or existing home with as little as 5% deposit.
  • A new Regional Home Guarantee would give eligible homebuyers, including non-first home buyers and permanent residents, the opportunity to purchase or construct a new home in regional areas with a deposit as low as 5% (subject to the passage of enabling legislation).
  • The Family Home Guarantee will be expanded from July 1, 2022 to help single parents with children to buy their first home, or to re-enter the housing market, with a deposit of as little as 2%.

The schemes can only be used on homes under a certain price guide outlined by each state and territory government. To find out more about whether you could be eligible, speak to us.

The Labor government have confirmed they’ll also have the regional buying policy with only 5% needed if elected but have not yet stated what they’ll do for metro areas.

We’ll continue to provide updates on the latest information that comes from both political parties on the issues that affect your business as we get closer to the Election.

Meanwhile, property prices in Sydney and Melbourne fell last month, despite a modest national uptick in the monthly growth rate. Let’s take a look at what’s been happening in the property world.

Interest rate news

At its April meeting, the Reserve Bank of Australia (RBA) kept the cash rate on hold at 0.10%, as it continues to monitor how various factors affecting inflation evolve.

Many economists believe there will be an increase later this year, with some expecting it to come as early as June. The Government’s large-scale cost of living packages announced in the federal budget added further fuel to the fire that interest rates could rise.

Interest rates have been on the move recently, with some lenders slashing variable interest rates and some increasing their fixed-rate loans. Check with us to see how your lender compares to others.

Home value movements

National housing values crept up 0.7% in March, a small increase on the 0.6% rise in values recorded in February.

In Sydney and Melbourne, prices fell by 0.2% and 0.1% respectively and their growth rates were slower in the March quarter than other capital cities.

Brisbane (2%) and Adelaide (1.9%) saw the strongest growth in dwelling values in March, while property values increased by 1% in both Canberra and Perth.

CoreLogic’s research director, Tim Lawless, said while the monthly rate of growth was up among some cities and regions, there was mounting evidence that housing growth rates were losing momentum.

“Virtually every capital city and major rest of state region has moved through a peak in the trend rate of growth some time last year or earlier this year,” Mr Lawless said.

“The sharpest slowdown has been in Sydney, where housing prices are the most unaffordable, advertised supply is trending higher and sales activity is down over the year.”

“There are a few exceptions to the slowdown, with regional South Australia recording a new cyclical high over the March quarter and some momentum is returning to the Perth market where the rate of growth is once again trending higher since WA re-opened its borders.” Meanwhile, housing values across the combined regional areas rose at more than three times the pace of the combined capital cities through the March quarter.

All dwellingsAuctionsClearance RatePrivate SaleMonthly home
values change
VIC82387%1384▼ -0.1%
NSW57788%1635▼ -0.2%
ACT7994%70▲ 1.0%
QLD9872%1281▲ 2.0%
WA2– %777▲ 1.0%
NT367%42▲ 0.8%
TAS1– %203▲ 0.3%
SA7895%401▲ 1.9%
* Monthly Home Values figures as of 31 March 2022
* Australian auction results, clearance rates and recent sales for the week ending 3 April 2022
* The clearance rate is preliminary and current as of 11.57am AEST, 4 April 2022

Why not make Autumn extra special with a property purchase you’ll always remember? Get in touch to organise pre-approval on your finance today.

Additional sources

CoreLogic RP Data Daily Home Value Index: Monthly Values