WHO BENEFITS?


JUNE PROPERTY REPORT

The looming interest rate rise is officially upon us with The Reserve Bank of Australia having lifted its cash rate for the first time in over 11 years. The size of the increase was larger than the expected with the RBA suggesting more rises to come. But, before you jump to any conclusions, it is important to understand what the rate rise means for your family.

Let’s start at the beginning. The RBA raised its cash rate for the first time since 2010 by a whopping 25 points from 0.10% to 0.35%. The substantial rate rise is said to be a necessary step to cool inflation by adding to the slow down in home prices where it is expected to see profit margins taper off by 10-15% over the next 2 years. This is coming off the back of an increase of 30-40% in the last 2 years.

So the burning question on everyone’s mind, how will the rate rise effect your home loan? First and foremost, we recommend speaking to your broker or bank. NS Finance & Mortgages has touched on this in their editorial, but remember there are a lot of factors to consider. The average owner occupier with a $500,000 mortgage should see a rise of approximately $17 per week, that’s $65 per month or $780 per year. This may vary depending on their interest rate, loan size and loan term balance. If you have a home loan of $750,000, your monthly repayment amount may increase by $98. And for those with a mortgage of a million bucks, it is expected to be upwards of $130 per month. Again, please consult your financial advisor for the exact amount based on your rate.



Whilst higher interest rates raise the cost of mortgage repayments, they also mean higher income for those with cash in the bank such as our ageing population and their retirement funds. Thus, giving us an incentive to save again. Because we are more inclined to hold onto our cash during these times, money is removed from the system, businesses activity may slow, and ultimately, the price of goods and services such as food and fuel, should decline.

On another interesting note, the Australian Government recently released a $500 million Homebuyer Fund initiative to support first home buyer’s purchase their first home sooner. Under this scheme, eligible homebuyers can receive a contribution of up to 25% of the purchase price of their property as well as Lenders Mortgage Insurance (LMI) exemption, all they need is 5% deposit. The Fund is a shared equity scheme where the Victorian Government’s financial contribution is made in exchange for a share in the property. This means when you go to sell your property, whether that be in 1 year or 10 years’ time, the Homebuyer Fund will share in any capital gain on your property’s value.

For example, Sarah wants to save for her first home but is finding it near impossible to save 20% and does not earn enough to qualify for a home loan of the value of the property. The Homebuyer Fund gives Sarah a large deposit in exchange for a 25% share in the property. Together with Sarah’s 5% deposit and the Fund’s 25% contribution, she is now eligible for a loan of 70% of the property value. After a few years when Sarah has enough money, she can pay out the government’s equity or, sell the property and pay back the governments proportional share which has now increased due to the rise in the property value over time.

 

 



This new government initiative has experts questioning if it’s going to solve the state’s housing affordability crisis. Executive Director of Property Council of Australia, Danni Hunter, is of the opinion that whilst the scheme will give lower income households accessibility into the market, it will do little to address the significant issues behind Victoria’s housing affordability. Hunter believes the reason home ownership is out of reach for many young Aussies is due to the lack of supply of new homes and steep property taxes.

 

Whilst the Fund has its faults, it also allows low-income households to save an achievable 5% deposit (instead of an unrealistic 20% plus fees) meaning those who may have otherwise rented for their entire lives now have the opportunity to enter the market. The question is, would part owning a home be better than not owning one at all? The scheme aims to provide relief in the rental sector whilst maintaining home ownership at an entry level.

All in all, there is a lot going on in the country right now and it is understandable that our community is feeling the burden. We have undeniably felt the market ease this month, however, the great Aussie dream of owning a home is stronger than ever. It is only natural to see ebbs and flows and we will be riding the waves with you every step of the way. Remember, every cloud has a silver lining. 


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