Interest Rates Rise Again

02nd Aug, 2022 | First Home Buyer, Investor

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The Reserve Bank of Australia (RBA) has announced another 0.5% raise in the official cash rate, leaving it at 1.85%.

The Reserve Bank of Australia (‘RBA’) has announced another 0.5% raise in the official cash rate, leaving it at 1.85%. 

Mark Bouris and Stephen Koukoulas predicted this rate rise during Property insights, released early this week. Bouris said both he and Koukoulas were clear that there would be a 0.5% increase to the cash rate this month, “and we may be looking at another half a per cent next month,” but Bouris stressed that the bigger concern for borrowers is answering the question of how many more rate rises will there by this year?

Click the video below to find out what their predictions are for the rest of this year:

How does this affect borrowers?

Let’s look at an example of how your repayments might increase if your lender was to pass on the entire 0.5% increase after today’s announcement.

Say for example your home loan interest rate were to increase from 3.5% to 4.0%, you would experience an increase of $28.38 per month, per $100,000 borrowed, in terms of minimum monthly repayments over a 30-year loan term. For example:

  • Repayment increase on a $400,000 loan = $113.52
  • Repayment increase on a $600,000 loan = $170.28
  • Repayment increase on a $800,000 loan = $227.04

Property prices continue to take a hit

The official cash rate announcement coincided with CoreLogic releasing its national Home Value Index report for the month of July, which showed Australian house prices fell by -1.3%.

The report from CoreLogic stated: “Five of the eight capital cities recorded a month-on-month decline in July, led by Sydney and Melbourne where values fell -2.2% and -1.5% respectively.  Brisbane also edged into negative growth territory for the first time since August 2020, with values down -0.8%, while Canberra (-1.1%) and Hobart (-1.5%) were also down over the month.”

“Perth (+0.2%), Adelaide (+0.4%) and Darwin (+0.5%) remained in positive growth through July, however, most of these markets have recorded a sharp slowdown in the pace of capital gains since the first interest rate hike in May.”

CoreLogic’s research director, Tim Lawless said that “Although the housing market is only three months into a decline … the rate of decline is comparable with the onset of the global financial crisis in 2008, and the sharp downswing of the early 1980s.”

However, “It’s important to remember the context of these statistics,” Mr Lawless said. “While national home sales are falling from record highs, they are still 9.2% above the previous five-year average for this time of the year.”

What should borrowers focus on?

Cameron Hawke​, Branch Principal & Mortgage Broker of YBR Mount Barker, said that there are possibilities available to borrowers who are feeling the pinch of rising rates.

“With a rapidly increasing interest rate market, mortgage repayments are increasingly becoming a larger percentage of your monthly outgoings,” said Cameron.

“Combined with increased costs of living, this is placing increased pressure on monthly cash flow on multiple fronts for many Australian households. If you are feeling these pressures, there are many possibilities including, where appropriate, refinancing out again to a new 30-year term where your minimum repayment will reduce.”

“Debt consolidation might also be a possibility. The trick here with both is, if manageable, to still make the same combined monthly repayment as today. You will quickly move in advance of your loan, placing yourself in full control of your finances and able to ride out this abnormal season.”

“For those too highly leveraged with multiple properties, but not wishing to sell for a few years’ time, bridging might also be an appropriate strategy. Whatever your situation, there is some urgency required, as each RBA interest rate increase reduces borrowing power. So don’t delay, get in control of your finances and contact your local YBR broker today so we can review what’s best for your personal situation.”

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