One of Australia’s leading economists has forecast a positive spring selling season – in part due to a sharp decline in household savings.

“With savings rates now plummeting, what does this mean for property?” Ray White Chief Economist Nerida Conisbee said.

“With retail trade falling for the third straight quarter, savings rates plummeting and inflation trending down, it is looking more like we are now at peak rates. With more property coming on to the market, this greater certainty about the outlook is likely to make this a much better spring selling season than last year.”

 

How high savings affected the property market

To understand the connection between savings and the property market, we need to look at the rise and fall of savings over the past three years.

The household saving ratio jumped from 6.8% in the December 2019 quarter to a record 23.6% in the June 2020 quarter, as people cut back on spending during the pandemic. Since then, it’s fallen to just 3.7% in the March 2023 quarter – the lowest since 2001.

The high savings ratio during the pandemic had several impacts on property, according to Ms Conisbee.

“Despite Australia seeing negative net migration overseas, rents grew rapidly, increasing by 13% between March 2020 and December 2021. Although difficult to explain at the time, it has since been shown that average household size declined during the time and the number of single person households hit a record high. Rental demand jumped as more people decided they liked living alone more or in smaller households,” she said. 

“It was also a major driver of house price growth. Higher savings rates meant more to spend on other things when restrictions began to ease and it became apparent that the pandemic would at some point end. Extremely low interest rates and lots of saved cash meant strong demand from buyers, pushing up prices across Australia.”

 

How low savings will affect the property market

Since we emerged from the pandemic, savings rates have declined. That is impacting the property market in different ways, according to Ms Conisbee.

“Rising cost of goods, higher rents and higher mortgage payments are now leading us to dig deep. We are not yet spending more than we earn, as what happened in the Global Financial Crisis. However one more interest rate rise, energy price rises continuing or even a slight rise in unemployment could tip us into negative territory. All of this has implications for where the Reserve Bank of Australia will next move, and by extension, property,” she said.

Partly for that reason, Ms Conisbee predicted the Reserve Bank had come to the end of its rate hiking cycle.

Peak rates, combined with more stock coming onto the market and a more certain outlook, is expected to lead to a much better spring selling season than last year’s, she added.

Today, the Reserve Bank of Australia (RBA) chose to hold the cash rate at 4.1%. This is the second month in a row the Bank chose to hold the cash rate following positive signs in inflationary data.

With the uncertainty around the future of interest rates – whether they will keep increasing or have reached their peak – we are regularly asked about limitations around pre-approvals and whether they are worth getting.

In short, pre-approvals are a good idea if you are serious about buying property. Here is why.

Pre-approvals:

  1. give you confidence a lender is satisfied with your current situation to lend you the money you need.
  2. provide an understanding of how much you may be able to borrow.
  3. show real estate agents and vendors you are a serious buyer and ready to purchase.
  4. can speed up the process of getting your loan approval as the lender already has your information to make the final assessment.
  5. remove some of the stress when your offer has been accepted as you have already completed a lot of the paperwork and submitted key documentation.

In saying this, there are some limitations to pre-approvals to be aware of. A pre-approval is a good indication of your borrowing power and that the lender is happy to lend to you at that time. However, it is conditional, based on your circumstances and the interest-rate environment at the time of the application. This means if anything changes between the time you received your pre-approval – either within your circumstances or if there have been significant changes with interest rates – your final application can be impacted. Small changes to interest rate is unlikely to impact your pre-approval. That said, we will work with you to do everything in our power to get your finances across the line.

How long does a pre-approval last?

The timeframe a pre-approval is valid for depends on the lender. In general, it is around three months, but can be up to six. However, if your circumstances change or there is a change in the cash rate, it is a good idea to reach out to your broker for a chat to determine if your borrowing power could have been impacted.

If your pre-approval is approaching its expiration, speak to your broker to discuss your options including applying for an extension or a new pre-approved product.

Making an offer

If you find property you would like to make an offer on, reach out to your broker to discuss whether there could have been any changes to your borrowing power and the range you may want to offer within. Your broker can also determine whether the property you are interested in falls within the lender’s criteria and provide a free property report that shows recent similar transactions nearby. 

It is a good idea to include a finance clause in your offer – usually around 10 days. If your offer is accepted, speak to your conveyancer or solicitor to ensure you are happy with the contract and any conditions, such as building and pest inspections, that are included.

Keep in mind if you are bidding at an auction, your offer is unconditional and binding with no opportunity for a finance clause.

If you have any questions – reach out for a chat. And if you’re thinking about buying property, make an appointment to get your free property-buying plan in place.

Australia’s consumer watchdog has put businesses on notice about false environmental and sustainability claims, after finding a large number were engaging in ‘greenwashing’.

The Australian Competition & Consumer Commission (the ACCC) has published draft guidance to help businesses stay on the right side of the Australian Consumer Law. This comes in response to ACCC research in late 2022 that found 57% of businesses reviewed were making potentially misleading environmental claims.

The ACCC’s draft guidance has recommended that businesses apply eight principles when making environmental claims:

  1. Make accurate and truthful claims.
  2. Have evidence to back up your claims.
  3. Don’t leave out or hide important information.
  4. Explain any conditions or qualifications on your claims.
  5. Avoid broad and unqualified claims.
  6. Use clear and easy-to-understand language.
  7. Make sure visual elements don’t give the wrong impression.
  8. Be direct and open about your sustainability transition.

 

If you’re unsure, don’t say it: ACCC

ACCC chair Gina Cass-Gottlieb said businesses needed to be honest and transparent when making environmental or sustainability claims so consumers didn’t get misled.

“False or misleading claims can undermine consumer trust in all green claims, particularly when consumers are often paying higher prices based on these claims,” she said.

“Similarly, businesses that are taking genuine steps to adopt sustainable practices are put at a competitive disadvantage by businesses that engage in ‘greenwashing’ without incurring the same costs.”

Ms Cass-Gottlieb said businesses must provide clear, accurate information to consumers about green claims – and that “if you are unsure or can’t substantiate these claims, then don’t make the claim.”

The ACCC is seeking feedback from businesses, consumers and other stakeholders on its draft guidance. Consultation closes on 15 September 2023.

Business confidence has fallen to its lowest level in almost three years, according to Roy Morgan’s latest monthly survey.

The Roy Morgan Business Confidence Index slipped to 88.8 points in June, compared to 90.3 points the month before and 97.3 points the year before. 

That is the lowest reading since September 2020 and well below the long-term average of 112.0 points. A score of 100 is neutral; anything lower is negative and anything higher is positive.

Looking at a state-by-state breakdown, all but one state recorded negative confidence in June:

 

Businesses backing themselves, but down on the economy

Ironically, the businesses surveyed in June were still broadly positive about their own prospects: 41.1% expected to be better off financially in a year’s time and 25.7% worse off.

However, businesses were broadly negative about the outlook for the economy, with 62.2% expecting bad times over the next 12 months and only 35.6% expecting good times.

At the same time, 45.0% believed the next 12 months would be a good time to invest in growing their business, while 48.3% believed it would be a bad time.

 

Improve your bottom line

Every business is unique. While this may not be a good time to invest for some businesses, it may be for yours. If you feel that buying new machinery or equipment would make your business more profitable, get in touch and I’ll be happy to finance it for you.

Alternatively, if you want to consolidate your financial position, contact me about refinancing. I could potentially help you reduce your interest rate or switch to more favourable loan terms.

A new report from the Productivity Commission (PC) has solved the mystery of why Australia’s labour productivity is falling.

Labour productivity fell 4.6% in the 12 months to March 2023, according to the most recent data from the Australian Bureau of Statistics. The PC report said this was “most likely due to the unwinding of COVID-19 restrictions and the historically low unemployment rate”.

Focusing on the first cause, the report found that productivity rose during the pandemic.

“Less-productive firms were more likely to pause production, and contact-intensive service sectors were severely affected by COVID-19 restrictions. As a result, labour productivity increased through a productivity-enhancing reallocation of labour. More labour flowed towards high-productivity goods sectors, and within the same sector, labour also shifted to high-productivity firms,” the report found.

“As the pandemic subsided and restrictions were lifted, the service sector recovered and firms with low average productivity levels – such as hospitality – returned to production. This partly reversed the reallocation effect, lowering measured labour productivity.”

 

The downside of falling unemployment

As for the second cause, similar forces were at play.

“The COVID-19 pandemic at first caused an increase in under- and unemployment. This disproportionately affected low-productivity workers because the pandemic forced firms in lower-productivity customer-facing industries to cut costs, reduce production and lay off some of their workers. Consequently, this led to a temporary increase in labour productivity,” according to the report.

“As the labour market recovered from the COVID-19 pandemic and the unemployment rate fell to historic lows, lower-productivity workers reentered the workforce, thereby reducing labour productivity.”

 

Better times may lie ahead

PC Chair Michael Brennan said that while productivity had fallen recently, the increased digital capacity Australia developed during the pandemic could lead to a lasting productivity dividend.

“Government and business should continue to embrace innovation and invest in upskilling the workforce to maintain that momentum,” he said.

A leading property data analyst believes that while property investors continue to hold the balance of power in the rental market, the rental crisis among tenants is now starting to ease.

SQM Research Managing Director Louis Christopher said new data showed vacancy rates (which measure the share of untenanted rental properties) had increased in several capital cities and, as a result, the pace of rent increases had significantly slowed.

Mr Christopher was quick to note that “the rental crisis is not yet over and, given our ongoing strong population growth rates, it is very unlikely we will get to an oversupply of rental properties anytime soon”. However, he added that a mere easing in conditions “can at least translate to a steadying of market rents after what has been an extended period of very rapid market rent growth”.

Here is the latest SQM data for the eight capital cities:

Sydney

Melbourne

Brisbane

Perth

Adelaide

Hobart

Canberra

Darwin

While vacancy rates and rental growth are easing, they’re still strongly favouring property investors.

If you’d like to buy an investment property as a way of building wealth, I can help you get a competitive loan.

You could fund the deposit in the standard way – through your savings – or potentially by using the equity in your home, which means you might not need any cash.

Contact me today to discuss your options.

New data from Roy Morgan has found 12.5% of Australians who expect to buy a new vehicle in the next four years plan to go electric.

Over the past four years, the number of people who plan to buy an electric vehicle (EV) has jumped 1,236.6%, from 41,000 to 548,000 people, according to Roy Morgan.

Tesla has been largely responsible for this growing interest in EVs.

Since 2018, there’s been a 897.3% increase in the number of people who plan to buy a Tesla in the next four years. And of the 548,000 people who intend to buy an EV in the next four years, 369,000 intend to choose a Tesla.

That said, Australians are showing growing interest in other EV brands. While 67.3% of future EV buyers plan to choose a Tesla, that’s fallen from 90.9% in 2020.

There’s also been a change in the gender breakdown of EV enthusiasts. In 2020, 76% of people who planned to buy an EV were men and 24% women; now, it’s 61% and 39%.

 

Tesla has moved from fringe player to market force

Roy Morgan CEO Michele Levine said Tesla had surged from being the 16th-highest-selling brand in Australia in 2022 to the sixth-highest in 2023 so far.

“Tesla is clearly the dominant force in the electric vehicle market but as the intention to purchase data shows – there is an increasing gap opening up between those who want to buy an electric vehicle and those who intend to purchase a Tesla,” she said.

“This gap, which didn’t exist three years ago, shows that as other manufacturers such as BMW, Mercedes, Volvo, BYD and MG launch competing electric vehicle brands, there is an increasing market for these vehicles to tap into.”

 

Some lenders offer rate discounts for EVs

In recent times, some lenders have started charging lower interest rates for EV loans compared to standard car loans. This is part of a larger shift among lenders to showcase their green credentials.

If you want to buy an EV, I can help you finance the purchase by comparing loans from a range of lenders.

My strong recommendation is to organise your finance before you start searching for a vehicle so you know how much you can spend and can budget for the repayments.

 

The Reserve Bank of Australia (RBA) has unveiled a series of reforms to how it manages and communicates the country’s monetary policy.

Following an independent review of the RBA, which was commissioned by the federal government, the RBA board has agreed to update how it conducts monetary policy (i.e. the setting of the cash rate) and shares its thinking with the public.

As a result, Governor Philip Lowe said the RBA would make a series of changes, starting in 2024. They include:

“The less frequent and longer meetings will provide more time for the board to examine issues in detail and to have deeper discussions on monetary policy strategy, alternative policy options and risks, as well as on communication. Likewise, the staff will have more time for analysis, with less time spent preparing summaries of recent developments,” Governor Lowe said.

“The board will also be able to hear directly from more staff and have greater opportunity to request work on particular topics. And the post-meeting media conferences will provide a timely opportunity to explain the board’s decisions and to answer questions. This will complement our existing communications, including through speeches with Q&A. Together, this is a significant package of reform that will contribute to better decision-making and communication.”

 

RBA gets new leader

Meanwhile, the federal government has decided against awarding Governor Lowe a second seven-year term.

As a result, he will be replaced by the current deputy governor, Michele Bullock, on 18 September.

“I am deeply honoured to have been appointed to this important position. It is a challenging time to be coming into this role, but I will be supported by a strong executive team and boards. I am committed to ensuring that the Reserve Bank delivers on its policy and operational objectives for the benefit of the Australian people,” Ms Bullock said.

In its meeting today, the RBA board decided to hold the cash rate at 4.1%, giving reprieve to homeowners.

As interest rates have increased in line with the cash rate hikes over the last year, it has become harder for some mortgage holders to refinance their home loan. However, to overcome this, some lenders are reducing what is called a ‘serviceability buffer’, making it easier for some borrowers to meet the criteria to refinance.

What is a serviceability buffer?

Lenders are required to use a serviceability buffer when determining how much a person can borrow to make sure they can continue to meet repayments even if interest rates increase or their circumstances change. The Australian Prudential Regulation Authority (APRA) recommends a buffer of 3%, meaning lenders calculate whether a borrower could comfortably meet repayments if the interest rate on the loan was 3 percentage points higher at the time the loan is granted.

How has the serviceability buffer been impacting refinancers?

As interest rates have increased, some people have found themselves in what is called “mortgage prison” where their income has not kept pace with higher repayments. If someone took out a home loan when the cash rate was at 0.1%, they now would have exceeded the stress test that was applied at the time as the cash rate has increased more than the 3% serviceability buffer. 

In some cases, lenders applying a 3% serviceability buffer on top of the current increased interest rate could disqualify a number of borrowers from refinancing their loan, essentially trapping them with their existing loan and interest rate.

What has changed?

Major lenders Commonwealth Bank and Westpac have announced they will reduce their serviceability buffer to 1% for eligible borrowers who haven’t missed any repayments in the last 12 months and hold equity in their property. This means some homeowners who previously were ineligible may now be able to refinance to a lower interest rate.

Can I refinance my home loan?

There is a good chance we will be able to find a lender that will refinance your loan, or work with you toward a solution. Whether you need to free up cash for a project, want to consolidate debt or see if you could be on a better rate, we can search the market to find the right solution for you. Lenders are making refinancing more accessible for people who otherwise would be facing a mortgage prison and there are still competitive deals in the market. Simply reach out and let us do the legwork for you.

The federal parliament has approved two new tax incentives for businesses to train their staff and improve their digital capacity.

The Technology Investment Boost and the Skills and Training Boost are designed to make it easier for small and medium businesses to scale up and become more productive.

Under these incentives, which have been backdated to 29 March 2022, businesses with an annual turnover of less than $50 million will have access to:

These two incentives are worth more than $1.5 billion and will be accessible by 3.8 million businesses that employ nearly 8 million workers, according to government figures.

Treasurer Jim Chalmers said the government recognised the important role small businesses played in the economy.

“When small businesses invest in digital technologies and upskilling staff, it boosts their productivity and drives economic growth,” he said.

“That’s why we are making them law and backdating deductions so businesses are rewarded for the investments they’ve been making and can take advantage of this extra support.”

Minister for Financial Services Stephen Jones said these incentives would help small businesses remain competitive in a rapidly changing technological landscape.

“Millions of small businesses that have already invested in new technology this financial year will now be eligible to make deductions this tax time. It’s great news at a time where small businesses most need cash flow support,” he said.

Tax incentives aside, the new financial year is always a time when businesses make plans to increase their profitability and invest in future growth. Contact me if you’d like to organise a business loan so you can finance your investment plans.