Interest rate impacts
Market ANALYSIS
Loan Market Excel Finance Broker Adam Wallace-Harrison provides his analysis on the latest interest rate hike.
Spring selling season has been and almost gone, property values are climbing, and the Reserve Bank of Australia has thrown in a 0.25 percentage point interest rate hike this November. What does it mean for the market, and will it finally put the brakes on that pesky inflation?
After holding steady at 4.1 percent for the past four months, the Reserve Bank made the decision to increase the cash rate in November. This was a calculated move, driven by a close examination of persistent inflation data, a robust economic landscape, a resilient job market, and an upbeat performance in home prices.
What does this mean for mortgage holders, and will it affect housing prices? No doubt, interest rates play a pivotal role in shaping the cost dynamics of property transactions.However, seasoned investors and homeowners know that the property market is a complex ecosystem influenced by various factors. Population growth, employment trends, construction costs, household income, and zoning regulations all contribute to the rise and fall of property values. The Australian property market, both on a national and local scale, has historically demonstrated resilience, particularly due to a shortage of housing.
Examining the local coastal scene, Tweed Coast property markets show diversity. First-time buyers and those in lower socio-economic areas might feel the squeeze more with the interest rate hike, navigating the waves of higher gearing. Conversely, coastal hotspots like Kingscliff, Casuarina, Bogangar, Cabarita Beach, and Pottsville, fuelled by the Tweed Hospital development, are facing a housing shortage, buoying values with attractive rental returns.
How do you position yourself strategically in this dynamic market?
1. Bargain like a pro: Dial up your bank or broker. Let them know you’re shopping around and see them scramble to keep your business.
2. Fixed or variable? It’s your call: Think about locking in a fixed-rate loan. This gives you certainty of repayments to assist with your household budgets.
3. Adjust your gearing ratio: If your gearing ratio is stretched, contemplate ways in which you could re-shape this, such as repaying debt, increasing loan repayments to get debt down over a shorter time frame, refinancing on a more competitive interest rate, adding value (e.g., through renovating or rezoning).
4. Release some equity: Using any available equity in your property to consolidate any high interest-bearing consumer debts to lower your monthly outgoings. You may also wish to release some equity to park in your offset account as “working capital” so you have some sleep at night money available if required.
5. If really under stress, consider selling: This is a tough call, and broadly property is a long-term hold investment. If you do have to sell however, it may open opportunities for investing at lower gearing in another market. If this is your only option, now could be a good time due to the shortage of housing and pent-up buyer demand.
Interest rate adjustments are just a part of the property cycle – some changes hit harder than others. If the rising costs are throwing off your financial rhythm, it’s wise to connect with your lender or broker before you fall behind. Waiting until you’ve missed a repayment will impact your credit file and therefore impact the options available.
Keep your approach grounded, streamline your strategy, and always remember – it’s your financial journey, so make it work for you.
To get in touch with Adam call 1300 003 414 or email excel@loanmarket.com.au
