Welcome to our new quarterly newsletter. The aim to give you an update on what is happening with home loans and then focus on a speciality topic each time.

Rate changes

The Reserve Bank of Australia’s (RBA) has increased the cash rate twice over recent months. A rate rise of 0.25% in May 2022 and 0.50% in June 2022, resulting in the cash rate sitting at 0.85%. The RBA governor and various economists are forecasting future increases to the cash rate.

Domain Article – Interest Rates

With the potential of further rate increases, those of you that have fixed a portion of your loan look to have made the right call, but you will still need to be conscious of higher repayments when your fixed rate loan expires.

See below some options for preparing for future rate rises:

• Fix in a portion of your loan: This will give you security around the repayment amount over the fixed rate period (1-5 years) but in the short term will increase your repayment as current variable rates are ~3% and fixed rates are close to 5%.
• Understand how the rate changes will impact your repayments:
  • With the interest rate increase of 0.50%, repayments on a principal and interest loan of $500k would increase by approximately $133 per month.
  • Check the impact of a rate increase on your level of repayment – use the following calculator to assist: Loan Repayment Calculator

• Minimise other sources of debt: Consider paying down other sources of debt (car loans, personal loans or credit cards) that are likely to be at a higher interest rate than your mortgage as well as a shorter loan term (meaning higher repayments).
• Build a buffer: Whether this be in your offset account or with a redraw facility you can build up a cash buffer that could be utilised down the track when rates are higher. You can also do this by increasing your repayments now to reduce the interest you are paying.
• Review your budget: Phone/internet plans, utility charges, Insurances (health, car, home) and other monthly fixed costs can be a good starting point for savings. As well as the obvious reduction in discretionary spending.

Property Market

The property market has had a whirlwind last 3 years with RBA rate changes, APRA loosening and tightening of lending and the economic impact of the Covid-19 pandemic.

Source: CoreLogic – National Housing Market Update | June 2022

Luckily with most property purchases they are a long-term investment and when looking over a 6-year period at Melbourne’s median property price the compound annual growth rate is 6.68% for houses and 4.25% for units.

Source: Domain – House Price Reports

Special Topic: Apartment Supply

According to the property advisory group Charter Keck Cramer, there is a forecasted undersupply of apartments on Australia’s east coast in 2022. This has been caused by numerous factors, including low level of upcoming construction projects, population growth and the increase in international travel.

Melbourne requires roughly 50,000 new dwellings a year to maintain its growing population. In 2018 there was 13,300 apartments completed, and 15,300 in 2019. Currently there is only around 6,300 apartments expected to be completed for 2022. The decreased number of upcoming construction projects is due to the construction industry being severely affected by COVID, increased material costs, border closures and a downturn in demand for apartments in recent years.

But with continual growth in the prices of houses, there is optimism that people will have to start looking at apartments in order to get into the market. This coupled with the downturn in supply could lead to a growth in the prices in apartments.

See below two articles for more information on the future of the apartment market:
The Urban Developer Article
Specifier Source Article

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