By Guest Blogger, Louisa Sanghera, Principal Broker,
Zippy Financial
Banks are now predicting that we could see the Reserve Bank of Australia start to lift the cash rate as early as June.
Economists are now predicting several interest rate increases in the next year or two, with mortgages expected to cost at least 1% more by next year.
What does this mean for the average person who has a mortgage, or wants to take out a mortgage? And how will these interest rate rises impact property investors and homebuyers’ ability to borrow over the next two years?
The impact of interest rate rises on both homeowners and property investors alike could vary, but in general, I’m expecting a few things to happen:
Investors will continue to invest
Investors are less likely to feel the pinch than first home buyers. While increasing interest rates will mean their investment properties cost them more, investors see their mortgage as “the cost of doing business”. Even for those investors who own a number of properties and are therefore going to find their mortgage obligations increase across all of their properties, aren’t likely to be too badly impacted, as rents are increasing at a massive rate too.
Current property owners will tighten their belt
Those Australians who already own their home are currently paying mortgage repayments that are the lowest in history. We’ve never, ever seen interest rates begin with a 1 in Australia, until the last few years. Existing mortgage holders have benefitted from low interest rates and now, they’ll need to review their budgets and adjust their habits to manage upcoming increases. You can work out how much your home loan repayments are likely to increase, by using a home loan calculator. As a guide, an increase of 0.5% on a principal and interest home loan worth $600,000 is around $160 per month.
First home buyers face a double whammy
With rents rising at a record pace in 2022, first home buyers are feeling the impact, and they’re motivated to convert those rental payments into mortgage payments as soon as possible. They’re keen to enter the property market as soon as possible – but massive price growth in the last couple of years isn’t making it very easy for them. Paying a large weekly rent while also trying to save a deposit is no easy feat. ABS stats are showing the proportion of first home buyers who are active is already dropping substantially, and that trend is expected to continue.
Refinancing activity will be high
In 2020, hundreds of thousands of homeowners and investors refinanced their home loans as they sought to deal with the fallout of the pandemic.
Two years on, it’s time to revisit those loans and ensure that your finances and loans are still set up with the optimal loan structures and the lowest possible rates.
Most property owners have also seen their real estate assets increase in value, so this could be a good time to refinance to:
- Find a lower interest rate or more suitable deal, such as a fixed rate home loan.
- Access some equity from your recent property value growth, to lock away in a “rainy day” savings account (or better yet, an offset account).
- Ensure you’re not paying too much - this is especially important for investors who have multiple properties, and therefore multiple home loans.
Regardless of which of these categories you fall into, it’s a good idea to check in with an experienced mortgage broker and see what your options are. A broker can take a look at your current situation and help you work out what your options are now, in 12 months or even in 2-3 years down the track.
Contact us today on 1300 855 022 or visit www.zippyfinancial.com.au
Louisa Sanghera - Director and Principal Award-Winning mortgage broker at Zippy Financial
Louisa created Zippy Financial after a 25-year career in banking, with the goal of using her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients grow their wealth through smart property financing. Whether you are looking to buy your first home, re-finance or build your property investment portfolio, Louisa and her team of experienced brokers can help guide you through the challenging maze of finding & securing exactly the right loan for you.
M: 0414083522 or 1300 855 022
E: louisa@zippyfinancial.com.au
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