The Reserve Bank of Australia has rounded out 2023 with the decision to hold the nation’s cash rate at 4.35%.

2023 hasn’t been an easy year for homeowners or ambitious first-home buyers. The cash rate increased from 3.10% to 4.35% over the course of eleven months in the RBA’s bid to bring inflation back within its target range. According to data from the RBA, the average home loan rate at the start of the year (for existing home loans) was 5.46% p.a.. If the lender passed on interest rates in line with the increased cash rate, that would make the interest rate 6.71% p.a.. Based on the average Australian mortgage of $599,000 on a 25-year term paying principal and interest, that equals an additional $459 per month simply to service the mortgage (from $3,661 to $4,123 per month).

For first-home buyers, the average time to save for a deposit has increased to 14 years, according to a recent paper by the Australian Housing and Urban Research Institute Limited, with the national ratio of median house price to median income now sitting at 8.5.

That is the hard reality many Australians are currently facing. So the question is, what will 2024 bring? Short of looking into an Australian-economy crystal ball, we can’t predict exactly what will happen with inflation, the cash rate and therefore interest rates. However, there are a couple of factors to consider.

Why 2024 could be a good time for first-home buyers 

Despite some potential challenges, 2024 could actually be a good time to get into the housing market. Here’s why.

  1. Savings interest rates are up – the pro of the cash rate going up is that savings interest rates also tend to go up. This can help expedite saving for a deposit.
  2. It could be cheaper to be a homeowner – according to PropTrack data, it is now cheaper to buy an apartment rather than renting one in most capital cities (based over a ten-year period with a 20% deposit). In fact, a third of properties nationally are cheaper to buy than rent.
  3. The First Home Guarantee has expanded – in 2023 the eligibility criteria for the First Home Guarantee, Family Home Guarantee and Regional First Home Buyer Guarantee was expanded, enabling eligible buyers to get into the market sooner. This means if you have a 5% deposit (or 2% if you are a single parent or guardian), you may be able to use one of the schemes to purchase property without paying lenders mortgage insurance.
  4. ‘Help to buy’ scheme to be introduced – the federal government has announced plans to rollout a new scheme that will help up to 40,000 eligible buyers with as little as a 2% deposit get into the housing market with lower repayments.

If 2024 is the year you want to purchase your first home, it is a good idea to speak with your broker to find out how much you may be able to borrow and set a plan in place to achieve your goal.

Australia’s unemployment rate has been remarkably steady – and low – for more than a year, but it might start trending upwards in the coming months.

Unemployment rose from 3.6% in September to 3.7% in October, according to the Australian Bureau of Statistics (ABS). That marked the 16th consecutive month in which it had hovered between 3.5% and 3.7%.

Data from the ABS and Jobs & Skills Australia (JSA) data show there were 547,800 unemployed workers and 261,200 job ads in October – or 2.1 unemployed for every 1 vacancy. That marked a change from the year before, when there were 483,900 unemployed and 287,400 job ads – or 1.7 unemployed for every 1 vacancy.

So there are now more unemployed people chasing fewer vacancies.

Furthermore, Australia’s pool of workers is actually doing less work.

Over the six months to October, the number of people with jobs rose 1.7%. But the total number of hours worked by all those people actually fell, by 2.1%.

That suggests that as the economy has slowed, some employers have responded by putting some staff on reduced hours rather than dismissing them. But if the economy slows further, some of those workers might get retrenched.

 

Unemployment forecast to reach 4.25%

As it turns out, JSA said its October data showed labour market conditions were weakening across most of the country.

“While online recruitment grew in some regional areas, declines were recorded for all major occupation and skill level groups. October saw the largest single month decrease in job advertisements during 2023 and, at the national level, job advertisements were at their lowest since December 2021,” JSA said.

At the Reserve Bank’s latest monetary policy meeting, board members reached a similar conclusion.

“Members noted that the labour market had been resilient in 2023, though there had been signs of gradual easing in a range of measures,” according to the minutes of the meeting. 

“Employment growth had slowed to around the rate of population growth, such that the employment-to-population ratio had remained around its multi-decade high. Hours worked had been a key margin of adjustment for firms. Average hours worked had declined over preceding months and most of the employment growth during that period had been in part-time work.”

The minutes added: “The unemployment rate was anticipated to stabilise around 4.25% from late 2024, with employment growing but at a more moderate pace.”

 

The Reserve Bank of Australia (RBA) has upwardly revised its forecasts for economic growth and inflation, with both proving to be more resilient than expected.

The economy, which is currently growing at an annualised rate of 2.1% according to the latest data, is now expected to grow 1.5% in 2023 (compared to a July forecast of 1.0%) and 2.0% in 2024 (1.75%).

At the same time, inflation, which is currently at 5.4%, is expected to fall to 4.5% by the end of this year (previous forecast: 4.25%) and 3.5% by the end of next year (3.25%).

“Growth in the Australian economy is expected to remain below trend over 2023 and 2024 as cost-of-living pressures and higher interest rates continue to weigh on demand,” according to the RBA. 

“But the economy has proved to be more resilient in recent quarters than previously expected – which is supporting demand conditions for Australian businesses.”

Unfortunately, inflation is also staying higher for longer than predicted, with inflationary pressures dissipating more slowly than the RBA previously forecast.

“Goods prices have accounted for almost all of the decline in inflation so far; goods inflation is expected to continue falling in the near term as the resolution of supply disruptions flows through to prices paid by consumers,” according to the RBA.

“By contrast, services inflation remains high. Services inflation is expected to ease but to remain above its inflation-targeting average throughout the forecast period in an environment of elevated domestic cost pressures and still-robust levels of demand.”

 

Wages growth is expected to decline

The rate of economic growth and inflation will have a major impact on wages growth, which is currently running at 4% per annum.

The RBA believes wages growth is close to its peak and will decline gradually, and has slightly downgraded its forecasts from three months earlier.

Now, wages are expected to rise 4.0% this year (compared to the earlier forecast of 4.1%) and 3.7% next year (3.8%).

“Nominal wages growth is expected to remain robust in the near term, underpinned by the ongoing tightness of the labour market and high inflation outcomes,” the RBA said.

“Inertia in the wage-setting process and some lagged catch-up in real wages mean that the decline in wages growth is forecast to be slower than the decline in inflation.”

The Christmas holidays can be a challenging time for a business’s cash flow, because expenses can rise, income can fall and it can be hard to respond to emergencies when so many people are on leave.

With that in mind, here are seven tips to help you manage your cash flow over Christmas.

Do a cash flow analysis. This will give you an indication of how your cash flow is likely to be placed during December and January.

Send invoices early. Clients can be more careless about paying invoices between mid-December and mid-January, as their thoughts – and payroll staff – may be elsewhere. Invoicing promptly will help you maximise your income during the holiday season.

Speak to your suppliers. If you think cash flow is likely to be tight, it might be worth asking for an extension on any imminent bills.

Trim fat. Scrutinise your upcoming expenses. Chances are, you’ll find some costs you can cut without making a material difference to your productivity.

Plan your staffing. Calculate how much work you’re likely to do over the holidays and therefore how much labour you’ll need. That way, you won’t be paying workers to twiddle their thumbs.

Plan your stock. You should also carefully calculate how much stock you’ll need over the holidays, so you don’t over-order.

Get a business loan. This could be a smart way to protect your cash flow. You could use the loan to cover short-term expenses, to make sure you don’t run out of cash over the holidays. You could also use it as an insurance policy – a ready source of emergency cash, in case something goes wrong over the holidays and you need fast finance at a time when lenders might be closed.

 

Contact me today if you’d like to organise a business loan or revisit your current loan structure. With Christmas just around the corner, the sooner you act, the better.

The Australian Banking Association (ABA) has launched a campaign encouraging borrowers struggling with loan repayments to seek help, in a valuable reminder there are options available if you’re finding it hard to keep up with your mortgage.

Your bank may be able to:

ABA CEO Anna Bligh said banks understood many borrowers were facing challenging circumstances.

“Banks stood by their customers during the COVID-19 pandemic, deferring payments for people who for the first time in their lives found themselves unable to pay. Banks stand ready to help people again now,” she said.

“People who are finding their finances are stretched should not feel they have no options and they have to do it on their own. Banks have dedicated, highly experienced teams ready to help.”

As your broker, I’m also here to help. You’re welcome to contact me for advice;I can then speak to and negotiate with your lender on your behalf.

The key thing is to move fast, because the further you get ahead of the problem, the more flexible and helpful banks tend to be. 

 

Australians continue to buy new vehicles in record numbers, according to the latest data from the Federal Chamber of Automotive Industries (FCAI).

A total of 106,809 new vehicles were sold in October, marking the fifth time in six months that a record for that particular month was set.

Every state and territory recorded higher sales in October than the year before:

The strong October result took 2023 sales above 1 million – the first time this milestone had been reached by October.

FCAI Chief Executive Tony Weber said there was strong demand for a wide array of vehicles across various price brackets.

“After some challenging years through COVID, this milestone speaks to the range of vehicles available to consumers, affirming Australia’s position as one of the world’s most dynamic and competitive markets. It also reflects vastly improved supply chains,” he said.

 

Broker v dealer finance

If you want to buy a new vehicle, doing your research before taking out finance could save you thousands.

Car dealers often work with one lender, however I work with a diverse range of lenders, which means I can really compare the market on your behalf.

The average interest rate charged on home loans has, surprisingly, increased by less than the series of cash rate hikes during 2022 and 2023.

Between May 2022 and September 2023, the cash rate increased by 4.00 percentage points, whereas interest rates on outstanding mortgages increased by an average of only 2.90 percentage points, according to the Reserve Bank of Australia (RBA).

The RBA said this was partly because, even as the cash rate was rising, a lot of people remained on low-rate fixed loans, which brought down the average mortgage rate.

But it was also due, in part, to “the effect of competition between lenders on variable-rate housing loans” and “the willingness of banks to negotiate discounts to retain existing customers”, because variable interest rates increased by an average of only 3.31 percentage points during the same period.

 

The year that was

With Christmas approaching, it’s worth reflecting on what a volatile year this has been. 

The cash rate started the year at 3.10% and reached 4.35% by November, with the RBA raising rates at five of their 10 monetary policy meetings and leaving them on hold at the other five. The big four banks believe the RBA has now ended its tightening cycle and will actually start reducing the cash rate in late 2024.

The property market was also unpredictable. The national median price fell in January, for the 10th consecutive month, but then rose in the nine consecutive months to October, according to CoreLogic. As a result of that collective 7.6% price gain, the national median ended October only 0.5% lower than the record price posted in April 2022.

In other major news from 2024:

It’s highly likely 2024 will be another big year for the home loans and property markets, especially if interest rates eventually fall and property prices keep rising, as forecast.

If you’d like help buying your own home, purchasing an investment property or refinancing to a better loan, get in touch.

 

If you’re now looking to buy, or even refinance your existing loan, there are a few ways to increase the chances of your loan application being approved.

 

Keep in mind the things that lenders consider before approving your application. These include your credit report, existing debts, income, assets and spending. This helps them form an idea of your ‘creditworthiness’ and whether you could comfortably meet repayments. That said, there are ways to make yourself more attractive to lenders.

Some quick tips to improve your creditworthiness when applying for a loan.

1. Check your credit report

You can get a free copy of your credit report. It is a good idea to check there are no mistakes and all listed debts are correct. If anything is incorrect, you can request them to be fixed by the credit reporter. I can help you get your credit report.

2. Review your spending

Have a look through your bank statements to see where your money has been going. If there are unused subscriptions or unnecessary spending, it is a good idea to unsubscribe or cut them out in the future to show you are responsible with your spending. It can also help to create a budget to see areas for improvement.

3. Pay off debt

Make sure you keep up with any debt repayments and consider making additional repayments where you can. This can help you save on interest and also show you are responsible with debts. It is also a good idea to pay off any buy-now-pay-later debts to reduce the amount of credit you are owing.

4. Consolidate debts

It can be worth reviewing your debts to see if consolidating them could save you money. This can include home loan, car loan, credit cards and personal loans.

5. Eliminate extra credit

If you have credit cards in your name that you are not using, it can be helpful to cancel them. This is because the lender will look at the amount of credit you can access, which can reduce the amount they are willing to lend you.

6. Space out credit applications

It is a good idea to spread out applications for credit where possible, particularly if you are rejected for a loan. When lenders see multiple recent applications, they may be more wary about lending to you.

7. Demonstrate genuine savings

Lenders look at how well you can save money over time. This means that cash gifts or inheritance, while helpful to boost your deposit, won’t be considered toward the lender’s assessment of your saving habits. Do your best to make regular deposits into your bank account to show you can save.

8. Work with a broker

Okay, this one is obviously a self plug. However, an experienced broker knows lenders’ policies and what they look for in an application, and can help you not only apply for a suitable loan but also help you put your best foot forward.

Whether you are looking to purchase your first home, next home, use equity to purchase an investment property or refinance your home loan, I can help you find the right solution and make your application as solid as possible.

Businesses that fall behind on their tax and superannuation obligations could be reported to credit bureaus, the Australian Taxation Office (ATO) has warned, potentially making it harder and dearer for them to secure loans.

After the ATO went easy on enforcement during the pandemic, it said it had returned to “business-as-usual debt collection”. As a result, it said it expected to disclose the debts of more than 9,000 businesses this month.

If a business falls behind on its tax and super obligations, it may receive a ‘notice of intent to disclose’ letter. It then has 28 days to settle its debt or enter into an appropriate arrangement with the ATO. Otherwise, the debt may be reported. The ATO has forecast that it would issue more than 50,000 notices of intent this financial year.

ATO Assistant Commissioner Jillian Kitto said paying or engaging with the ATO was the only way to stop a business’s tax debt becoming visible in credit rating checks.

“We want to work with businesses to help them get on top of their debts. Anyone with a debt is encouraged to reach out to us as soon as possible,” she said.

“We give businesses ample opportunity to re-engage with us. However, those who show continued and ongoing disregard for their tax and super obligations will have their debts disclosed. While we do not take disclosures lightly, consequences will apply to businesses who refuse to pay or engage with us.”

Ms Kitto said that after the ATO focused on tax help and stimulus payments during the pandemic, it now felt it needed to reestablish a culture of paying tax on time.

“There is over $5 billion owed by businesses who currently meet the criteria for disclosure. We must draw a line in the sand to protect the Australian community and other creditors, and to ensure a level playing field for businesses who do the right thing,” she said.

“If you have an outstanding tax debt, we strongly urge you to pay it or reach out to us or your tax professional so we can provide the right support.”

Commercial property buyers made $11.8 billion of purchases in the first nine months of 2023, according to JLL, well short of the activity recorded in 2022, when $29.2 billion of transactions occurred throughout the entire year.

Activity has fluctuated during 2023, with $4.3 billion of transactions in the first quarter, $3.5 billion in the second and $4.0 billion in the third.

By way of comparison, there were $9.6 billion of transactions in the third quarter of last year, representing a year-on-year decline of 58%.

Drilling down on the Q3 data, logistics & industrial volumes fell 38% year-on-year to $1.6 billion, office fell 77% to $1.2 billion and retail fell 29% to $1.2 billion.

JLL’s Australasian Head of Capital Markets, Luke Billiau, said buyers weren’t seeing much value in the Australian commercial market right now.

“The fall in transactions since the beginning of 2023 is indicative of the pricing discovery in the market as a result of rapidly changing funding costs and a low-leverage environment relative to other global markets that prolongs this period,” he said.

That said, he felt Australia was well-placed to attract global capital, due to its growing population, economic resilience and increasing infrastructure investment.

Australia is well-capitalised relative to other countries

In the first nine months of 2023, foreign buyers accounted for 19.0% of commercial property transactions, down from 25.5% in the same period last year.

JLL’s Head of Capital Markets Research, Andrew Quillfeldt, said overseas interest would be one factor that would drive investment activity in 2024.

“While the institutional real estate market in Australia is well-capitalised relative to other countries, we’re still expecting some capital recycling for sector reallocation purposes to drive asset sales,” he said.

“Industrial and build-to-rent are becoming even higher conviction strategies for many groups. Furthermore, some funds are likely to be looking to divest assets to fund development and to de-lever to maintain conservative gearing.”

With buyer activity subdued, there might be an opportunity to buy a quality commercial asset for a low price. If you’d like to take action, contact me and I’ll arrange the finance for you.