To Refinance or not…

With multiple interest rate hikes and slowing market conditions, there's fierce competition amongst banks to attract new customers with aggressive new rates. These may compare well against what you’re currently paying. 

Here’s how to quickly check if refinancing is worth all the hassle. Pick up the phone and call your bank to negotiate down your current rate - there’s a good chance they’ll entertain you. 

Once you know what your bank can do, look into the various lenders out there to see what they’re offering. A shortcut is to give a good mortgage broker a call. Good mortgage brokers will work with many lenders and once we know your situation, we can give you an idea of whether another lender may give you a better rate while also suiting your goals. If we can’t do better, we’ll happily advise you to stay put.

An easy rule of thumb is that you’ll save $5000 per year on a loan of 1 million if your new rate is 0.5% better.

Refinancing is not just about getting a better rate.

• You may wish to free up equity you’ve built in your own home or investment properties so that you can use the funds for other purposes such as renovations or to pay for a deposit for a new investment property, etc. 

• You might want to consolidate any unsecured debts such as personal loans, car loans and credit cards under your home loan. This means you will pay less because the rate for your home loan is better than the rate on the unsecured loans. 

• If you’re building a property portfolio, you may want to make sure your securities aren’t cross-collaterised. Depending on your strategy and situation, we can review this and advise you.

Property Investor and Rental Income Sept 2022

Property investors and your rental income: Good news on the rental front for property investors due to the serial rate increases. Rents have risen faster than at any other time in the past 14 years. 

It’s been reported that capital cities have seen a 9.1% rent increase while regional areas have seen a 10.8% increase compared to June last year.

Domain reports that Sydney remains at a record low vacancy rate, and Melbourne’s vacancy rate has dropped to 1.5%. Vacancy rates below 2% signals a landlords’ market.

SQM Research, said: “Rental vacancy rates continued to tighten across the country and there is nothing yet in the data that would suggest we are about to see a reprieve. The national rental crisis continues on unabated and as a result, asking rents are skyrocketing.”

Source: Domain

Key takeaways:

• Sydney’s vacancy rate is at its lowest at 1.4%

• Brisbane remains at an all-time low of 0.6%.

• Adelaide continues its reign as the most competitive capital city in which to find a rental, remaining steady at 0.3%.

• Canberra’s vacancy rate has moved up slightly from 0.7% and hit a six-month high at 0.8%

• Hobart has similarly moved up slightly from 0.4% for an 11-month high at 0.5% 

We’re definitely seeing a landlords’ market across Australia. However, there will continue to be change as vacancy rates stabilise nationally and even increase in some cities. As we’re also seeing the return of overseas migration and international students, this is going to put even more pressure on rentals.

Reserve Bank of Australia consecutive rate hikes to combat inflation

The Reserve Bank of Australia has put up the cash rate from 0.1% to 1.85% in 4 consecutive hikes to combat inflation. The inflation rate of 6.1% is the highest since the early 1990s. RBA expects inflation to peak at the end of the year and then decline to 2-3%.

What does this mean for interest rates?

There will likely be more rate rises over the months ahead. NAB expects the cash rate target to reach 2.85% by Dec 2022. The banks are likely to pass on all rate hikes in-full to customers. So, keep in mind that by the end of the year, there may be an additional 1% increase in interest rates to your variable loans.

Source: Reserve Bank of Australia

RBA September 2020 Decision - Interest Rates Held

Interest rates have been maintained at 0.25%. However, we may need to watch out in the future according to this article by Anastasia Santoreneos for Yahoo Finance:

More than half of experts and economists surveyed by Finder believe banks will increase variable home loan rates next year, despite the Reserve Bank of Australia predicting the official cash rate to remain at 0.25 per cent for the foreseeable future.

When asked when Aussies could expect banks to make the move, half of the respondents said banks were likely to announce out-of-cycle rate hikes during the first half of 2021. 

Why?

“Banking profits have nosedived off the back of billions of dollars worth of loan deferrals, a shrinking pool of first-time buyers, low-interest rates and minimal credit growth,” said Finder insights manager Graham Cooke.

They may then put up rates to cover more of their costs. If you haven’t thought about fixing part or all of your loan yet, I’d consider it.

RBA August 2020 Decision - Interest Rates Maintained

Once again interest rates in Australia have been maintained at 0.25%. Although Victoria is going through a tough time with the coronavirus, the RBA aren’t cutting rates any further. According to this article by Gareth Hutchens for ABC News:

Last month, Reserve Bank governor Philip Lowe raised the prospect of cutting rates further if necessary, perhaps to 0.1 per cent, but the board held off on taking further action at today's meeting.

Interesting, however, I haven’t seen this reported before and there’s no mention of any of this kind of thinking in Philip Lowe’s official statement last month or this month. He acknowledges the impact that coronavirus is having on the Victorian economy and that the Australian economy is “experiencing the biggest contraction since the 1930s” but points out that “the downturn is not as severe as earlier expected and a recovery is now underway in most of Australia”.

Since action wasn’t taken this month even amongst the startling number of cases in Victoria over the past week, it seems unlikely that rates will be cut any further. But who knows what to expect? Six weeks ago the situation was looking so much better on the coronavirus front.