Mortgage holders can breathe easy for now, but be ready for future rate rises

06 Apr 2022

While the news of the Reserve Bank of Australia (RBA) leaving interest rates on a record low of 0.1 per cent has been well received by home owners, an increase later this year is a very strong possibility.

With unemployment low, wages rising and inflation surging, the stage is set for interest rates to go higher. This will be done over a series of hikes, expected in the second half of this year which will have a major impact on home owners. It is tipped that the rates will rise from 0.1 to 1.25 per cent in February 2023 adding $300 per month to the average $500,000 owner-occupier loan over 25 years.
This means that while some mortgage holders could afford the rise, others will have to pull back in other areas, especially if they are variable interest rate borrowers. Also, if they overstretched themselves to get into the property market recently, they would definitely be feeling the heat of the upcoming hikes.
It will be a balancing act for the RBA as they don’t want to see house prices crumble after such strong growth in the marketplace. 
RBA governor Philip Lowe acknowledged the growing pressure on the central bank to hike rates as inflation pressures have grown.
“Inflation has increased sharply in many parts of the world. Ongoing supply-side problems, Russia's invasion of Ukraine and strong demand as economies recover from the pandemic are all contributing to the upward pressure on prices,” Lowe said in his statement.
“In response, bond yields have risen and expectations of future policy interest rates have increased.”
The Treasurer handed down Budget 2022-23 via official documents at 7.30pm on Tuesday 29 March 2022 and is likely to impact property investors, tenants and homebuyers.
More relief for first home buyers, regional Australians and single parents
One of Prime Minister Scott Morrison’s key priorities is to get more people into their first homes. This was reflected in the Budget, with the announcement that the New Home Guarantee scheme would be expanded to 35,000 places – up from 20,000 places this year.
The scheme was developed in recognition of the fact the biggest impediment to buying a first home is saving a deposit – especially with rising national property values. So, it guarantees up to 15% of the purchase price of a property, allowing a first home buyer to take their first step on the property ladder with as little as five per cent of the purchase price. That means they won’t need to take out expensive lenders’ mortgage insurance (LMI).
The Federal Government will also extend the Regional Home Guarantee to 10,000 places, allowing many regional buyers to purchase property with a five per cent deposit, regardless of whether or not it is their first home.
Finally, the government announced the expansion of the Family Home Guarantee, which allows single parents looking to enter or re-enter the property market to buy with just a two per cent deposit.
Each of these schemes should provide welcome news to a lot of Western Australians, especially with rents rising so rapidly over the past year. However, it’s worth noting that income and property thresholds apply.
Still, when combined with State-based schemes, such as the First Home Owner Grant and Stamp Duty Concession – as well as low-interest rates – buying a first home has become an attractive proposition for many of us. We think it will result in many more Perth residents entering the market for the first time.
New social housing measures
Another welcome Budget 2022 announcement was that the federal government would be setting aside $2 billion for the National Housing Finance and Investment Corporation (NHFIC). The NFIC provides loans to community housing providers so they can build, acquire and maintain social housing. The government says this boost in funding will allow for community groups to provide 27,000 more low-cost dwellings.
As there is an acute shortage of rental properties in Perth right now, demand is far outstripping supply and often properties are rented out the very moment they hit the market. This isn’t just driving up prices, it’s also making it difficult for a whole generation of would-be renters who simply don’t have the stability or finances to enter the rental market.
The development is positive and one that should provide for more housing without impacting property prices or rents.

Peard Finance is here to guide you on your finance journey and accurately compare the home loan market for you. Don’t hesitate to contact us if you need further clarification on what loan is the most suitable for your current situation.

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